Government Affairs Archive

Government Affairs – the following information is an archive of all posts relating to government affairs that have appeared on the blog to date. The posts are categorized by date starting with the most recent.

July 8, 2015 (Washington, DC) – The Senate Committee on Finance’s Tax Reform Working Group on Savings & Investment released a report on their findings for reforming the tax system. Recommendations include the expansion of gain-deferral provisions of Code section 1042 for S ESOPs (employee stock ownership plans) and guaranteeing that small businesses with SBA certification do not lose their status when they become majority employee-owned companies.

“The ESOP Association and employee ownership community express strong support and appreciation that the major provisions in S. 1212, the Promotion and Expansion of Private Employee Ownership Act of 2015, are recommended for inclusion in reforms that will be considered by the Senate Finance Committee,” said ESOP Association President, J. Michael Keeling. “Including these provisions would open the door for the creation of more S corporations sponsoring employee ownership for average pay Americans.”

S. 1212 would amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of ESOPs in S corporations in America.

Page 13 of the memo from the Savings & Investment Working Group, which is co-chaired by Senator Michael Crapo (R-ID) and Senator Sherrod Brown (D-OH), states: “S Corporation Employee Stock Ownership Plans, or S-ESOPs, have a track record of providing retirement security for employee-owners of both small and large businesses. S. 1212, introduced by Senators Cardin and Roberts, contains several provisions to further encourage employee-ownership in S corporations, including extending the gain-deferral provisions of Code section 1042 to sales of employer stock to S-ESOPs, providing resources to small businesses contemplating making the transition to an ESOP, and ensuring that SBA-certified small businesses do not lose their status by becoming employee owned. The working group supports consideration of these bipartisan proposals; S. 1212 currently has 18 bipartisan cosponsors in addition to Senators Cardin and Roberts, including 9 Republicans, 7 Democrats, and two Independents.”

Keeling concluded, “It’s very encouraging to see continuous, bi-partisan support for expanding our capitalistic economic system. Our country’s founding fathers noted that broad-based ownership of productive assets is essential to a working democracy.”

In March 2015, The ESOP Association submitted comments on comprehensive tax reform to three of the Senate Committee on Finance’s Tax Reform Working Group on Savings & Investment. The Association specifically stated how ESOPs are in accord with the seven principles outlined by Finance Committee Chair Orrin Hatch (R-UT) for comprehensive tax reform — Economic Growth, Fairness, Simplicity, Permanence, Competitiveness, Promoting Savings and Investments, and Revenue Neutrality. Read the full statement on The ESOP Association’s website: http://www.esopassociation.org/advocate/esop-bulletin.

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

June 25, 2015

Tax Reform: With the leader of the Senate, Senator Mitch McConnell (R-KY), making it clear that the Senate will not consider a tax reform bill until 2017, when there is a new President, the media, in its usual superficial manner, says the message to America is to forget about tax reform legislation.

Well, depends on one’s perspective, and from the perspective of the media, which is selling a product, the drive is to report on what’s happening now, or what may happen tomorrow, as opposed to focusing on the building blocks of events that might be months, or even years, down the road.

But if one is interested in an outcome that will be determined to a great extent by the building blocks, even the foundational building blocks, what the Senate Finance Committee is doing, and what the Chair of the House Ways and Means Committee, Congressman Paul Ryan (R-WI), is planning to do, is important to ESOP advocates.

To explain with two references: ESOP advocates, and 99% of the readers of this column fall into this category, are very interested in the laws that encourage the creation and operation of ESOPs. Many may not be aware that the last tax reform bill, referred to as the Tax Reform Act of 1986, was not created in 1986 — in other words, it was not a “one-year” legislative activity. In fact, the first comprehensive proposal from the Administration surfaced in 1982. And in fact, the first written proposals in Congress, primarily led by members of Congress, Congressmen Jack Kemp (R-NY) and Richard Gephardt (D-MO), and Senator Bill Bradley (D-NJ), surfaced in the late 70s and early 80s. (People forget that upon taking office, President Carter put to the Congress a tax reform bill that led to a big tax bill, but it was not a true comprehensive tax reform bill).

Second reference point to illustrate that ESOP advocates are not to forget tax reform until 2017. In the first quarter of 2014, the then Chair of the House Ways and Means Committee, after months and months of review by subgroups of the Ways and Means Committee, published a real comprehensive tax reform proposal. In prior years, when a leader, be it the President, or a chair of one of the Congressional tax committees, released his “first” version of tax reform legislation, that proposal becomes the foundation, the first building block as it were, for the final structure. Yes, the final building does not look like the foundation, but it has a foundation that determines many, many aspects of the building’s look. The Camp Tax Reform proposal will still have many of its details in any bill adopted in 2017, or ever later.

What to Do? The ESOP Association’s Washington office continues to monitor, keep an eye on the sub-groups of the Senate Finance Committee that are reviewing tax laws that relate to ESOP creation and operation. The goal is to ensure the positive record of ESOP companies — particularly in having a record of sustainable jobs controlled in the United States — is known by key Senators and their staffs; but most important is to be ready to let the true power behind ESOP laws, ESOP companies and their employee owners, stand out when intense messaging is needed. But, the easiest, and in conjunction with keeping ESOPs front and center in the minds of women and men in Congress is to push for Representatives and Senators to co-sponsor H.R. 2096 and S. 1212 respectively. (For details, Advocacy Kit, or watch Spring Advocacy Kit Intro and Why You Should Invite Your Member of Congress to Visit Your Company.)

In other words, do not take a vacation from making sure those who will eventually decide on tax reform laws know why ESOP laws should be continued and expanded, by using pro-ESOP bills as the tool to make the case for ESOPs, and to have elected officials declare openly a pro-ESOP position.

June 8, 2015

With the introduction of new pro-ESOP legislation — H.R. 2096 and S. 1212 — we’ve updated the Advocacy Kits with new information and tactics for talking to your members of Congress about ESOPs and employee ownership.

If you would like to download a copy of the new Spring Advocacy Kit and the Congressional Visit Kit, click here.

Also, ESOP Association President, J. Michael Keeling, walks Association members through the 2015 Spring Advocacy Kit in this new video.

May 28, 2015

With the introduction of new pro-ESOP legislation — H.R. 2096 and S. 1212 — we’ve updated the Advocacy Kit with new information and tactics for talking to your members of Congress about ESOPs and employee ownership.

Additionally, if you would like to know if your member of Congress has publicly stated support for ESOPs, you can check the ESOP Advocates list on the Association’s website. This list is updated regularly.

May 27, 2015

With the introduction of H.R. 2096 and S. 1212, we’ve shared a lot legislative information in the past few weeks. Following up on those efforts, we thought we would share the Washington Report column from the May 2015 ESOP Report, the newsletter of The ESOP Association, that provides additional information. More information about the ESOP Report is here.

As in past Congresses since 1990, key ESOP champions have introduced bills that would encourage the creation and operation of private company ESOPs.

First, on April 29, 2015, Congressman David Reichert (R-WA, 8th District), introduced H.R. 2096, Promotion and Expansion of Private Employee Ownership Act of 2015, joined by seven other members of the House tax committee, so that the eight original sponsor and co-sponsors were four Republicans and four Democrats — a sign of the continued bi-partisan support for employee stock ownership through the ESOP model. His three Republican colleagues were Representatives Charles Boustany (R-LA, 3rd District), Erik Paulsen (R-MN, 3rd District), and Pat Tiberi (R-OH, 12th District). The four Democrats joining their tax committee colleagues were Representatives Earl Blumenauer (D-OR, 3rd District), Bill Pascrell (D-NJ, 9th District), Ron Kind (D-WI, 3rd District), and Richard Neal (D-MA, 1st District). (When the Democrats were the majority in the House, Representative Kind was the so-called “lead” sponsor.)

Similar legislation was introduced eight years ago.

It has four provisions: 1. To permit sellers of S stock to an ESOP to utilize Internal Revenue Code Section 1042, as sellers of C stock to an ESOP can do, if the stock is not publicly traded; 2. Provide that a lender to an ESOP may exclude 50% of its interest income from the loan if the loan is to an S corporation, and the ESOP holds 50% or more of the shares at the close of the transaction; 3. Establishes an office in the Department of Treasury to assist S corporations establish and maintain its ESOP in accordance with the sometimes difficult laws governing allocations of ESOP stock in an S corporation; and 4. Ensure that a small business that qualifies for a Small Business Administration preference — so-called 8A preference does not lose that preference if it becomes 50% or more owned by an ESOP.

Since introduction on April 29th, the following members of Congress have joined these eight: Representatives Brad Ashford (D-NE, 2nd District), Robert Dold (R-IL, 10th District), and Gwen Moore (D-WI, 4th District).

Senator Cardin has led the introduction of this pro-ESOP bill for the past eight years.

WHY CARE?: Some ESOP advocate may wonder why they should care, as it seems one, the Congress is doing nothing, and two, these pro-ESOP provisions have never been given a hearing or serious consideration in any prior tax bill in the past eight years.

Two big reasons: Congress will sooner or later, maybe this year, maybe three to four years from now, send a massive tax reform bill to the President, whoever he or she may be. To protect ESOPs, to win in the tax reform effort, the best defense is a good offense. Having these men and women sponsor a pro-ESOP position, many on the tax committees that will write a tax bill repealing or reducing many special tax rules, stand up for ESOPs, and for having more ESOPs, means that they are much more likely to be “for” good ESOP laws when they are challenged in the tax reform review.

Secondly, the major pro-ESOP provision adopted in the last 20 years was first introduced in a bill like H.R. 2096 and S. 1212 eight years before Congress adopted legislation permitting S corporations to have an ESOP. In other words, it took over eight years for the 1990 S ESOP proposal to finally be adopted by the Congress and sent to the President. It is not farfetched as more and more women and men in Congress endorse something like having S corporations eligible for 1042 treatment to make its way into a big tax bill as the support grows.

To Do List: Consider contacting your Senators and Representatives if they are not listed above, and respectfully ask that they get on the bandwagon for ESOPs.

This past month a set of inquires came in to The ESOP Association that the office has never really seen before.

Traditionally, when a committee, or committees, of the Congress, usually tax committees, work on revising law, or adding law pertaining to ERISA plans in general, and ESOP law in particular, it is not uncommon to have a Congressional office reach out to the Association’s office with questions. Not as frequent, but not unusual, the reach out is from a Congressional office of a member of the Congressional committees with jurisdiction over Title I of ERISA, which has the fiduciary provisions of law, along with some provisions on diversifying ERISA plan’s assets — these committees are often loosely referred to as the education and labor committees.

And we must cite one other example of why the Association might hear from a Congressional office — the member has openly and publicly co-sponsored a pro-ESOP legislative proposal, and the Association has that member listed publicly on its website as an ESOP “advocate.” Most often, and it is almost without fail, these members of Congress jumped on the pro-ESOP bandwagon due to direct visits with an ESOP company, or companies in her/his district or state.

But, here is the new development that triggered Association staff direct involvement with government relations responsibilities to sit back and wonder, “How come?”

How come over the past two months Congressional offices whose elected leader is not listed as an ESOP advocate, and who is not on the tax or labor committees of Congress, have unilaterally reached out to the Association’s DC office desiring to have a briefing on ESOP law, and to talk about new proposals the Representative or Senator is pondering to encourage ESOP creation?

While it would be dumb to set forth concrete reasons, there is reasonable speculation as to why are these not heard from before members of Congress reach out to the Association for ESOP information.

Interestingly, all of these inquiries came from a Congressional office of a Democrat.

So, what is it that has Democrats who have not been ESOP advocates, and who do not serve on a tax or labor committee, interested in promoting ESOPs?

It is a series of developments: One, the book The Citizen’s Share by respected academics Drs. Joseph Blasi and Douglas Kruse of Rutgers, and Dr. Richard Freeman of Harvard, attracted the attention of a think tank whose reputation among Democrats is very high — the Center for American Progress, or CAP. CAP staff, even before the book’s publication, was reviewing various policies that would increase the wage and wealth of average pay Americans, and broad-based ownership was on its radar screen for review. CAP staff actually had a half day roundtable discussion, with persons knowledgeable about broad-based ownership.

To highlight its work to increase income and wealth of average pay citizens, CAP sponsored a “summit” of top economists and opinion leaders that issued a paper full of recommendations to address income issues. In the paper was a straight forward endorsement of policies to increase “ownership” among more Americans, and ESOPs were specifically cited as an example of a program that did broaden ownership.

In conjunction with the CAP paper, famed economist Peter Orszag, who was President Obama’s first Director of the Office of Management and Budget, a very influential position in our government though not realized by most citizens, wrote a very straight to the point opinion piece for the widely read Bloomberg blog stating that President Obama needed to be forceful in promoting more ownership among Americans, citing ESOPs as did the CAP summit document.

Meanwhile on two recorded occasions — i.e. not a back room unpublished conversation — for the first time since Robert Reich was Secretary of Labor, the current Secretary of Labor, Thomas Perez, gave a glowing endorsement of ESOPs as good policy.

And, the Employee Ownership Foundation (EOF): You read it right, the Association’s affiliated 501(c)(3) was not directly involved, but…. Research supported by the Foundation and the publicity garnered by data gathered made its way into the discourse, woven into The Citizen’s Share in certain passages and sections — cited not as EOF materials, but citing work that neutral third parties had done on broad-based employee ownership that EOF helped fund, but certainly not controlled; data in a similar vein noted by the CAP staff people working on how to increase more ownership among average pay persons.

So, Democrats that prior to a few months ago did not take note of employee ownership, are beginning to do so.

Let it be said without hesitation; throughout the 90s and first 14 years of the 21st Century, the vocal men and women in Congress for promoting ESOPs were Republicans — much of its stemming from these men and women coming of maturity when their favorite national figure Ronald Reagan was President, and who was the best friend ESOPs ever had in the White House.

Always support for ESOPs in the tax and labor committees have been both Democrats and Republicans; and always the list of advocates is nearly balanced between the two, as when a member of Congress learns about ESOPs up close and personal on a company visit, s/he becomes a supporter.

But recently, it is pleasing to see the interest in ESOPs grow as opinion leaders that have the ear of Democrats in Congress have become more open about the value of employee stock ownership via the ESOP model.

Let us not let the “new” interest falter.

May 13, 2015

The following news from ESOP Association members ran in the April 2015 ESOP Report and we wanted to share with readers here. If you have ESOP company news to share, please send an email to media AT esopassociation.org.

Gibson Named Best Places to Work in Indiana for Third Consecutive Year

Gibson, an ESOP Association member, was recently named as one of the 2015 Best Places to Work in Indiana. The statewide survey and awards program is designed to identify, recognize, and honor the best places of employment in Indiana, benefiting the state’s economy, its workforce, and businesses. The 2015 Best Places to Work in Indiana list of 100 companies is made up of four different size categories.

Companies from across the state entered the two-part process first by evaluating each company’s workplace policies, practices, and demographics. This part of the process was 25% of the total evaluation. The other 75% consisted of an employee survey to measure the employee experience. The combined scores determined the top companies and the final ranking. An independent firm, Best Companies Group, managed the process, analyzed the data, and used their expertise to determine the final rankings.

Gibson will be recognized at the Best Places to Work Awards Dinner in May. Gibson is a 100% employee-owned (38% ESOP), regional insurance broker and risk management services firm with offices in South Bend, Plymouth, Indianapolis, and Fort Wayne, Indiana.

On March 10, 2015 the National Association of Manufacturers (NAM) awarded Congresswoman Cathy McMorris Rodgers (R-WA) the NAM Award for Manufacturing Legislative Excellence at an event hosted by NAM member Schweitzer Engineering Laboratories in Pullman, Washington.

“American manufacturing is critical to the strength of our nation’s economy,” said Edmund O. Schweitzer, III, president of Schweitzer Engineering Laboratories. “We applaud Congresswoman McMorris Rodgers’ efforts in support of a free, flat, and fair environment that enables manufacturers to grow, create jobs, and keep ahead of global competition.”

“Contributing almost 290,000 jobs to Washington state, manufacturers help grow our local economy from the bottom up,” said Congresswoman McMorris Rogers. “As a representative of the most trade-dependent state in the nation, I am proud to support this innovative, expanding industry that strengthens our opportunity economy. Our exports are critical to men and women across the state, and manufacturers understand that better than anyone.”

May 11, 2015

May 11, 2015 (Washington, DC) – The ESOP Association expresses strong support for S. 1212, introduced on May 6, 2015 by Senator Ben Cardin (D-MD) and co-sponsored by 13 Senators.

S. 1212 would amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of employee stock ownership plans (ESOPs) in S corporations in America. S. 1212 is the Senate companion bill to H.R. 2096 which was introduced on April 29, 2015 by Congressmen David G. Reichert (R-WA).

“Needless to say, it is extremely pleasing to see these Senate leaders, representing bi-partisanship, stand up for employee stock ownership through ESOPs. The ESOP Association notes its appreciation for these members who have joined in support of employee ownership and taken the lead to address issues that relate to increasing ownership shares among average pay Americans,” stated ESOP Association President, J. Michael Keeling. “Research proves that ESOPs are more profitable, more productive, and provide sustainable jobs. We need policies to encourage employee stock ownership, and the proposed policies in S. 1212, should address core social issues such as adequate retirement security and making sure working Americans have an ownership stake in our capitalistic system.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

H.R. 2096 would amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of employee stock ownership plans (ESOPs) in S corporations in America.

“Research proves that ESOPs are more profitable, more productive, and provide sustainable jobs. We need policies to encourage employee stock ownership, and the proposed policies in H.R. 2096, should address core social issues such as adequate retirement security and making sure working Americans have an ownership stake in our capitalistic system,” stated ESOP Association President, J. Michael Keeling.

Keeling continued, “It is extremely pleasing to see this bi-partisan group of members of the House Ways and Means Committee stand up for employee stock ownership through ESOPs. The ESOP Association notes its appreciation for these members who have joined in support of employee ownership and taken the lead to address issues that relate to increasing ownership shares among average pay Americans.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

April 20, 2015

As a member of the Coalition to Protect Retirement (CPR), The ESOP Association recently signed on to a group letter that was sent to the Senate Finance Committee’s Savings and Investment Working Group. The letter commended the Finance Committee for their work to reform the tax code and noted that “Congress should encourage retirement savings for American workers though the preservation of current tax incentives.”

The mission of the CPR is to encourage and support retirement savings for American workers through the preservation of tax incentives critical to American workers’ retirement security. The Association is one of ten members of the Coalition.

In addition to the letter from the CPR, the Association, as a member of the Retirement Savings Network, signed on to another letter that will be sent to the Working Group on Savings and Investment as well. The letter notes that “Eliminating or diminishing the current tax treatment of employer-provided retirement plans and individual savings arrangements would jeopardize the retirement security of tens of millions of American workers, impact the role of retirement assets in the capital markets, and create challenges in maintaining the quality of life for future generations of retirees.”

As noted earlier on this blog, The ESOP Association also submitted comments to Senate Working Groups regarding comprehensive tax reform.

On March 25, 2015, The ESOP Association submitted comments on comprehensive tax reform to three of the Senate Committee on Finance’s Tax Reform Working Groups: Savings & Investment, Individual Income Tax, and Business Income Tax. The Association specifically stated how employee stock ownership plans (ESOPs) are in accord with the seven principles outlined by Finance Committee Chair Orrin Hatch (R-UT) for comprehensive tax reform — Economic Growth, Fairness, Simplicity, Permanence, Competitiveness, Promoting Savings and Investments, and Revenue Neutrality.

As noted by ESOP Association President, J. Michael Keeling: “Current ESOP tax policy should be viewed with objectivity and considered fairly during the process. As ESOPs meet, and exceed, the seven principles outlined by Senator Hatch for comprehensive tax reform, we feel it is reasonable to ask that ESOP laws to promote the creation and operation of employee-owned companies be preserved, and expanded.” He went on to say, “Research proves that employee-owned companies provide more sustainable employment and preserve locally-controlled jobs in today’s global economy. We need to encourage broad-based, inclusive capitalism and increase employee ownership to ensure sustainable employment for U.S. workers, and more income for average pay employee owners.”

April 3, 2015

The following was shared with The ESOP Association by Lewis Tree employee owner, Rita Tucker; pictured at left with Congressman Reed:

“On February 24, 2015, Congressman Tom Reed visited the offices of Lewis Tree Service in West Henrietta, New York and was all smiles as he walked, talked and was led from the Palm executive conference room to the eagerly-awaiting employee owners in the company’s dining facility at the Lewis headquarters in Western New York. He had just concluded a very ESOP-spirited discussion among a small group of ESOP enthusiasts and owners. The corporate office houses just under 100 employee owners who listened intently as Congressman Reed addressed them on the importance of shared values of working hard, and creating job opportunities, in order to promote a healthy economy for our diverse generations to come.

Congressman Reed was genuinely interested in learning about the individual employee’s stories of how the Lewis ownership culture has helped employees plan and save for retirement and how ESOPs can further encourage growth and development in our economy. The originally-scheduled, one hour visit turned into a two-hour visit that left many employee owners feeling proud and positive about the future of ESOPs. Great questions and ideas were shared regarding ways to promote the presence and success of ESOP companies and in educating both our legislative officials and business communities about the ‘American Dream at Work’ — it is working!”

As noted by ESOP Association President, J. Michael Keeling: “Current ESOP tax policy should be viewed with objectivity and considered fairly during the process. As ESOPs meet, and exceed, the seven principles outlined by Senator Hatch for comprehensive tax reform, we feel it is reasonable to ask that ESOP laws to promote the creation and operation of employee-owned companies be preserved, and expanded.” He went on to say, “Research proves that employee-owned companies provide more sustainable employment and preserve locally-controlled jobs in today’s global economy. We need to encourage broad-based, inclusive capitalism and increase employee ownership to ensure sustainable employment for U.S. workers, and more income for average pay employee owners.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

March 9, 2015

In lieu of mandating that appraisers of private company stock held, or stock held by an ESOP, be ERISA fiduciaries, the Department of Labor is seriously considering reissuing the May 17, 1988, proposed “Adequate Consideration” regulation. In turn, a senior official of the Department has asked that The ESOP Association provide its thinking as to what a re-proposed Adequate Consideration regulation should provide in terms of ensuring ESOP appraisals be in accord with the laws governing private company ESOP appraisals.

The Association’s Washington office committed to the Department to honor its request for input. Thus, the Association’s Advisory Committee on Legislative and Regulatory Issues, and its Advisory Committee on Valuation, are developing a response for the Association to the Department’s request.

Discussion about content of the proposed 1988 Adequate Consideration regulation were a focus of the recent Professional Forum held in New Orleans in February 2015.

A copy of the proposed 1988 regulation is available on the Association’s website on the Legislative and Regulatory Issues Committee’s page. You will need to login to access the file. Once logged in:

The ESOP Association Submits Comments to the Senate Committee on Finance’s Tax Reform Working Group Regarding Comprehensive Tax Reform

February 19, 2015 (Washington, DC) – On February 18, 2015, The ESOP Association submitted comments to the Senate Committee on Finance regarding tax reform, specifically stating how employee stock ownership plans (ESOPs) are spot on with the first six principles outlined by Finance Committee Chair Orrin Hatch (R-UT) for comprehensive tax reform, and arguably exceeding the seventh principle. The statement was directed to Senator Mike Crapo (R-ID) and Senator Sherrod Brown (D-OH), Chair and Ranking member of the Tax Reform Working Group on Savings & Investment.

As noted by ESOP Association President, J. Michael Keeling: “I ask only two things of the Committee members — for current ESOP tax policy to be viewed with objectivity and to be considered fairly during the process. As ESOPs meet, and exceed, the seven principles outlined by Senator Hatch for comprehensive tax reform (Economic Growth, Fairness, Simplicity, Permanence, Competitiveness, Promoting Savings and Investments, and Revenue Neutrality) we feel it is reasonable to ask that ESOP laws to promote the creation and operation of employee-owned companies be preserved.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

Beginning with the results of the November mid-term elections, talk about the now Republican controlled tax committees new Chairs, Senator Orrin Hatch [R-UT] and Congressman Paul Ryan [R-WI] about re-writing the Federal tax code to lower the top rates and to get rid of tax “loopholes” was common. [By the way, a sidebar — never forget that the late Senator Russell Long [D-LA], the legislative godfather of ESOP tax benefits used to say that when it came to tax reform, the common refrain could be summed up as follows: Don’t tax me, don’t tax thee; tax that fellow behind the tree.]

Most so-called inside the beltway experts that appear on TV news cable shows opined, it will never hap­pen, and who cares?

Well, maybe it is time to wake up to what Chair Hatch is doing in the Senate on an expedited schedule.

Some history for the reader: During the first quarter of 2013, the first session of the 113th Congress, the Chair of the House Ways and Means Committee, now retired Dave Camp [R-MI], began a process where members of the Committee, both Republicans and Democrats, were divided into “working” groups, or what one might call “ad hoc task forces” to study in depth certain generic areas of the huge Federal Income Tax Code — energy, retirement savings, foreign, etc. — and to develop recommendations to eliminate tax loop­holes in the areas that task force was studying.

By late 2013, the task forces’ bi-partisan co-operation evaporated, as Democrats saw that increasing rev­enues was not part of the Republican agenda, as the Democrats wanted the higher income to pay enough to offset cuts in rates for the lower income plus add some money to the Federal basket to offset national debt, and to pay for more infrastructure funded by the Federal government, among other things.

Most of the inside the beltway cable TV pundits, left and right, proclaimed the tax reform effort dead. [Note: the effort came to a halt in the Senate when then Chair Senator Max Baucus announced his retire­ment to be Ambassador to China.]

Clearly Chair Camp had different ideas, and kept his Republican members at work, and from each task force, came up with recommendations, and in private meetings with Chair Camp and Republican members, developed the “Camp tax reform” proposal, which by the way, left ESOP tax benefits untouched.

Fast forward to right now. Chair Hatch, with some seemingly minor adjustments, has announced ad hoc task forces of his members of the Committee on Finance, with both Republican and Democrat members to develop recommendations in their areas, including one that will review all laws related to ERISA plans.

But here is the big difference; Chair Hatch intends his task forces not to study for 12 to 14 months and to make recommendations in 2016. He has instructed the leaders of each task force to make recommendations by March 2015 — which is just around the corner.

What is the word for ESOP advocates? Well, just because the Camp proposal did not diminish ESOP tax benefits, ESOP advocates should not assume that the Senate Finance Committee will not touch ESOP tax benefits. Over a 10 year period, under tactics for revenue estimates used in the past, getting rid of ESOP tax benefits would give the Committee around $14 billion over 10 years to put in the Federal Treasury and lower tax rates by that amount.

Here are the Senators that are on the task force that will decide initially what to say about ESOP tax ben­efits: Chairing the group is Senator Michael Crapo [R-ID], and his Republican members are Richard Burr [R-NC], Johnny Isakson [R-GA], Dean Heller [R-NV], and Tim Scott [R-SC]; the Democrat leader is Sherrod Brown [D-OH], and the other Democrats are Ben Cardin [D-MD], Bob Casey [D-PA], Mark Warner [D-VA], and Robert Menendez [D-NJ].

It is important that the positive ESOP message become front and center in these men’s minds as they do work on ERISA/ESOP issues, and that message must come from the ESOP advocates working in the ESOP companies in their states — i.e. their voters.

In due time, the Association will be reaching out to Idaho, North Carolina, Georgia, Nevada, South Carolina, Ohio, Maryland, Pennsylvania, Virginia, and New Jersey ESOP Association members refreshing memories about the macro evidence making the case for employee ownership through the ESOP model, while urging each ESOP company to tell their own story first and foremost.

The ESOP Association Submits Comments to the House Ways and Means Committee on Moving America Forward

February 4, 2015 (Washington, DC) – January 30, 2015, The ESOP Association submitted comments to the House Ways and Means Committee regarding the state of the U.S. economy and policies that can promote job creation and economic growth. The hearing, ‘Moving America Forward: With a Focus on Economic Growth’ was held on January 13, 2015.

As noted from the statement by ESOP Association President, J. Michael Keeling: “Most relevant to the review of jobs and wealth creation for all who work is that shared ownership through the ESOP model is an excellent jobs policy. Having policies that increase the probability that people with jobs will stay employed is the most important jobs policy Congress can promote. Data indicates that during the Great Recession employee stock owned companies were four times less likely to lay off employees than conventionally-owned companies.”

He concluded, “Keeping and expanding a proven policy, more employee ownership via the ESOP model, can significantly address the questions reviewed with regard to jobs in our nation, and our nation’s economy.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

February 2, 2015

The ESOP Association sent out the following release today regarding President Obama’s Fiscal Year 2016 budget.

For Immediate Release: February 2, 2015

Once More, Administration Takes Aim at Employee Ownership

February 2, 2015 (Washington, DC) – Today, The ESOP Association expressed disappointment once more over a provision in President Obama’s Fiscal Year 2016 budget that pertains to employee stock ownership plans (ESOPs). Included in the budget document is a provision to ‘eliminate deduction for dividends on stock of publicly-traded corporations held in ESOPs’ paid to ESOP participants.

“The Administration’s proposal is puzzling to the ESOP community. On one hand, the Administration goes out of its way to tout the work it’s doing to benefit average income employees, yet, the one policy on the books that encourages employers to provide additional income to employees is slated to be cut,” said ESOP Association President, J. Michael Keeling. “The roots of the employee ownership movement position it squarely as a second income plan. It’s been retained by Congress since 1984 to address income inequality by encouraging employee owners to have more income from ownership. The Administration needs to step up and encourage broad-based, inclusive capitalism and increase employee ownership to ensure sustainable employment for U.S. workers, and more income for average pay employee owners, not decrease support.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

January 28, 2015

On Monday, January 26, 2015, ESOP Association President, J. Michael Keeling, received a call from a senior official at the Department of Labor (DOL) regarding the proposed fiduciary rule noting it will not mandate that appraisers of private ESOP company stock be ERISA fiduciaries. (The rule was originally proposed in 2010.)

It’s generally known among DC groups that are following the DOL’s proposed fiduciary rule that the portion of the rule directed toward ESOPs will not be included in the re-proposed fiduciary proposal from 2010.

It should be noted, however, that the DOL will be looking for clarity and guidance on ESOP appraisals that are in accord with ERISA rules for private ESOP stock to be valued at fair market value, as defined by a ‘willing buyer/willing seller’ construct.

It should also be noted that while the above information on the re-proposal is now widely known, no specific proposed rule has been published yet. When published, we will let ESOP Association members know.

January 26, 2015 (Washington, DC) – On January 23, The ESOP Association filed an amicus curiae to the Supreme Court of the United States in the case Tibble v. Edison Int’l, No. 13-550.

President of The ESOP Association, J. Michael Keeling explains why the case is so important, “The Association is interested in the outcome of Tibble because it focuses on how the agencies that enforce laws and regulations governing ERISA plans, such as an ESOP (employee stock ownership plan), calculate the ERISA law that has a six year statute of limitation on when they, or plaintiff lawyers, can sue the sponsors and fiduciaries of an ERISA plan. If the Court sanctions the position of the petitioners, Tibble et. al, then any decision made at any time since the establishment of the ERISA plan can be deemed a violation of ERISA, even if the decision was made ten, fifteen, or even thirty years ago!”

In essence, petitioners are asking the Supreme Court to interpret an ERISA fiduciary’s duty to monitor prior decisions made more than six years ago, and decide if that long ago decision was not “right” in hindsight, or prudent to use the words of trustee law, and then, if the fiduciary does not unravel the long ago decision, s/he may be sued.

“Congress, in both ERISA and legislative history, in accordance with seven hundred years of common law principals, makes it clear that if a fiduciary’s decisions seemed prudent under the circumstances when made over six years earlier, is not to be second guessed,” President Keeling said. “To bring this into easily understood terms, in the Super Bowl several years ago, the referees maybe should have called pass interference on a reception in the end zone that resulted in Team A winning, and the NFL has decided to take the touchdown away, and declares Team B the winner,” he concluded.

The ESOP Association feels that if the Supreme Court negates the six year ERISA statute on limitations to sanction “Monday morning quarterbacking” by the regulatory agencies and/or plaintiff lawyers, many employers will back off establishing ESOPs and thus overall benefits for employee owners in their retirement years will be reduced.

Counsel for Amicus Curiae for The ESOP Association was Mayer Brown, LLP.

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

December 15, 2014

On October 20, Secretary Perez spoke at the National Press Club in Washington, DC, the topic: Shared Prosperity: Building an Economy that Works for Everyone. While the majority of the speech focused on private-sector job growth, shared prosperity, and B Corps, near the end of remarks he noted:

“Employee Stock Ownership Plans are another example of business leadership. In 2012, there were roughly 6,800 such plans, with nearly 14 million total participants and assets just over $1 trillion. When used as they were intended, ESOPs can contribute to the growth of a company while helping employees save for retirement.

The challenge moving forward for B Corps and ESOPs is to take these successful models to further scale.”

ESOP Association President, J. Michael Keeling said, “I was pleased to read these remarks. As you know, the ESOP community has many concerns regarding a proposed regulation by the DOL regarding the definition of a fiduciary. We have been working with individuals at the DOL and we’re hopeful that this statement represents a change for the good.”

ESOP Association Blog: government affairs information will be posted to The ESOP Association’s Blog as it happens. There is a subscription feature on the homepage of the blog. You’ll be notified by email when new information is posted. You can also subscribe to the RSS feed.

Facebook and LinkedIn: information and links to information are posted to the Association’s Facebook page and LinkedIn group for members to stay involved.

November 3, 2014

If you’re joining The ESOP Association at the 2014 Las Vegas Conference & Trade Show at Caesars Palace this November 13th and 14th, there will be an election wrap-up by ESOP Association President, J. Michal Keeling, at the Friday Lunch: November 14, 12:15 pm – 1:45 pm, Palace Ballroom.

Use Time Wisely: Think Elections

It is a waste of time to talk about what Congress may do in its lame duck session after the November Mid-term elections. Who knows, as crisis after crisis is exploding, and what next week will require is unknown, much less what will be the focus of Congress in November and December.

But, with members of Congress, the vast majority running for re-election, some in tough races, some not, moving around their districts and states, it is a perfect time to have your Congressperson, or her/his staff, or Senator, or his/her staff, come visit, or to interact at a local event, or to send a letter, or if you have contacts in her or his office, an email, asking that s/he co-sponsors H.R. 4837, the House pro-ESOP tax bill, or S. 742, the Senate pro-ESOP tax bill.

The track record is clear: Since 1990, on advice of the then leading champion for ESOPs on the House Ways and Means Committee, as the ESOP community came out of the 80s with a tax bill nearly every year, often reducing ESOP tax benefits, said to ESOP leaders: “You people need an offense; remember the best defense is an offense. I will introduce each Congress a pro-ESOP tax bill, bi-partisan, so we get members to say that they are “for” ESOPs, sending a message to those in the government and on Congressional professional staffs that are ESOP cynics, that if you want to hurt ESOPs, you will have a tough fight on your hands.”

So, each Congress, since 1990, the ESOP community has been able to go to members of Congress to get them to declare that s/he is for employee ownership through the ESOP model, and it is clear that when literally 100 and sometimes more, many on the tax committees of Congress, make it clear before the tax committees begin work on reducing tax benefits in order to lower tax rates, those with a knife out for ESOPs say, “Why take on a task and lose?”

A more colorful comment by a member of Congress some years ago who still serves on the House Ways and Means Committee when S ESOP advocates protested the proposal in 2001 to apply a corporate income tax on the ESOP’s share of its S sponsor’s taxable income, he said, “I learned a long time ago not to step on that ESOP snake!”

His remark was basically saying that the pain from other members not liking any negative action against ESOPs was not worth the amount of new tax revenue gained by squeezing ESOP companies and employees to pay more money.

“Stay with it” is the motto for now, and for the next two months, if your member of Congress is not a co-sponsor of H.R. 4837, or S. 742, ask; do not be bashful.

And the Election: For years the holy grail goal for ESOP advocates has been that some day, just some day, there would be ESOP voters, who would vote, or at least have a major reason for their vote, on how the candidates stood on ESOPs. The ESOP community is not there yet, but….

There is growing evidence from Association members that they do care how candidates stand on pro-ESOP policy — not big evidence but evidence. Take a look at the list of pro-ESOP men and women on the Association’s website: http://www.esopassociation.org/advocate/advocacy-kit/esop-advocates. First, see if your Congressperson or Senator is on the list. Then take note if s/he is in a tough re-election fight. Then think about how you will vote, in accord with your values, and your personal and company’s benefits from the ESOP, and put that into your calculation about how you will vote.

Your vote is your business; the Association respects how you vote, but thinking ESOP when you vote is not wrong; it is right.

October 31, 2014

The state of New Jersey has joined several other states in encouraging the creation of ESOPs. Recently, the New Jersey State Senate advanced bill S. 945, which provides for gross income tax exclusion for capital gains from the sale of certain employer securities, if at least 30% of the company is sold to the employees. The bill was introduced in January 2014 by New Jersey State Senator Donald Norcross (D-5th District).

This new bill is very similar to one introduced in December 2012 by New Jersey Deputy Speaker of the State Assemblyman, Upendra J. Chivukula (D-17th District) to help motivate small businesses, with 500 or fewer employees, to create ESOPs.

“It’s encouraging to see states introducing bills to encourage ESOP creation,” said ESOP Association President, J. Michael Keeling. “Clearly more state officers are seeing the benefits that employee-owned companies bring to the local economy.”

Similar legislation was also introduced in Missouri earlier this year. In 2012, Iowa’s Governor, Terry Branstad, signed into law an ESOP Initiative, and in addition to the Iowa law encouraging ESOP creation, Iowa’s Economic Development Authority has also put together a new ESOP initiative program to assist companies interested in creating an ESOP.

October 30, 2014

Recently, The ESOP Association joined colleagues in the retirement community in signing on to two letters in support of issues important to the retirement savings community.

The first, as part of the Retirement Savings Network, of which the Association is a member, was a letter celebrating the 40th birthday of ERISA that included 40 facts about the legislation and the benefits brought to millions in this country that have retirement savings. The letter was sent to all Capital Hill offices.

The second was a statement to the members of the Senate Finance Committee regarding the hearing on retirement savings held on September 16, 2014. The statement was made on behalf of the Coalition to Protect Retirement of which the Association is a member. The ESOP Association also submitted comments on behalf of Association members.

October 23, 2014

On September 16, 2014, the Senate Committee on Finance held a hearing on the state of retirement savings in the U.S. The ESOP Association submitted a statement for the record highlighting the prosperity of ESOP companies and the value employee ownership can bring to a company.

In the statement, ESOP Association President, J. Michael Keeling noted, “The Senate Finance Committee has a long history of supporting laws that encourage the creation and operation of ESOPs because in the vast majority of instances, ESOP companies are more productive, more profitable, with sustainable jobs for their employees that are locally-controlled, while providing retirement benefits that are greater than most U.S. conventionally-owned companies.”

October 14, 2014

There is no doubt, no question, that The ESOP Association, from day one of its existence, is all about ESOPs. And with regard to the Association’s focus on its advocacy mission, or its ‘lobbying’ mission if you like, it is all about ESOP laws and regulations.

No matter what you, or anyone may think of the women and men who are elected by voters to serve in the Congress, the bottom line is this — what these people do, or don’t do about ESOP laws and regulations can aid, can improve, or can be the demise of your ESOP, your company’s ESOP, or your clients’ ESOPs.

So while the ESOP community will be the only ones in America who will pay very, very close attention to what is done to impact your ESOP, or not, by the Congress in passing new laws, repealing old laws, and overseeing the implementation of the laws by the regulatory agencies, it is important to be aware of the ‘big’ picture as defined by who will be re-elected in the upcoming 2014 Congressional elections.

As said time and time again by the Association and its leadership, the Association does not presume to tell ESOP advocates and participants in ESOPs how to vote. How a person votes is the prerogative of the individual.

At the same time, the Association has a fiduciary obligation to inform its members who in Congress is ‘for’ ESOPs, and who is openly showing through their actions that s/he is for ESOPs. The Association does hope that each ESOP advocate and participant will weigh how he or she decides to vote based on whether the person seeking re-election has become an advocate for ESOPs by her or his public actions while serving in Congress.

[Good news, as of this day, there is no evidence that any member of Congress is ‘against’ ESOPs and positive ESOP law. This was not always the case as recently as 2010, and in the late 70s until the late 80s, there were probably 10 or so members of Congress in that era that felt current ESOP law was a waste of taxpayer money, or the laws governing ESOPs did not result in ‘real’ employee ownership, and thus needed to be drastically altered. If a member of the current Congress feels this way, s/he has not openly said so, or proposed legislation to do so.]

There are many members of Congress seeking re-election, and in all fairness, are not to be condemned just because they are not on the ESOP Advocates list posted at http://www.esopassociation.org/advocate/advocacy-kit/esop-advocates; it is just that we do not have any public evidence that they have any position with regard to ESOPs because they have not done anything publicly to indicate favoring current ESOP law, or expanding current ESOP law, or opposing an agency’s position that would be detrimental to ESOP creation and operation. Please note, to be an ESOP advocate, the member of Congress must have taken a pro-ESOP position that is public — such as being a co-sponsor of a pro-ESOP legislative proposal, offering a pro-ESOP amendment in a Committee, and making a statement that is part of the permanent Congressional Record that is pro-ESOP. It takes more than being nice to ESOP advocates when they visit a Congressional office.

If any member of The ESOP Association wants details about an ESOP Congressional Champion who is seeking re-election, do not hesitate to contact Association President Michael Keeling, michael AT esopassociation DOT org

For example, he would share what Senator seeking re-election he thinks would single handedly try to stop negative ESOP tax law proposals by filibustering on the Senate floor. He would share what member of the House is serving on the key committees that handle ESOP legislation and ESOP oversight duties. He would help you weigh what you might do, and what you might share with your fellow ESOP participants, in terms of the question, “Does this member of Congress deserve my/our vote because s/he can protect and enhance our ESOP?”

Sure the elections coming in November are ‘big picture’ stuff that the left-wing and right-wing TV cable shows like to bloviate about ad nauseam; but understanding the part of the big picture important to the ESOP community is as important to each ESOP advocate and her/his family.

“Ms. LANDRIEU. Madam President, I wish to reiterate my longstanding support for employee stock ownership plans or ESOPs. During my time in the Senate, I have been dedicated to building on the lasting contributions of my Louisiana predecessors, including Senator Russell B. Long, who, as Chair of the Senate Finance Committee, championed tax provisions to encourage corporations to adopt ESOPs. Senator Long advocated for employee stock ownership as an “issue that cuts across party lines in an attempt to bring out the best in our free enterprise system.’’ He believed that “it is only fair and right that those who work to make this economy succeed should have an opportunity to share in that success . . . [i]t is a matter of simple common sense and basic equity.’’ I couldn’t agree more.

“Last year, as chair of the Senate Committee on Small Business and Entrepreneurship, I convened a roundtable to provide small business owners, policy experts and other stakeholders an opportunity to express their views and to solicit their ideas on making tax reform work for small businesses. Participants argued in favor of a Tax Code that rewards employer and employee ownership as a means of providing continuity of business ownership and opportunities for employees of businesses to build wealth. Specifically, participants favored retaining the current Tax Code’s ESOP provisions, noting that during the most recent economic downturn, ESOPs, which are predominately small businesses, were able to retain more employees as they weathered the crisis than conventionally owned companies.

“Earlier this year, the New York Times published an article describing the research of three labor economists who have focused their work on promoting ESOPs as a “new perspective on how to resolve the disparities in wealth and income.’’ I ask unanimous consent to have printed in the Record the New York Times article, dated February 11, 2014, and titled, “Whatever Happened to ‘Every Man a King’?’’. These experts, Dr. Joseph Blasi and Dr. Richard Kruse of Rutgers University, and Dr. Douglas Freeman of Harvard University, argue in their book, “The Citizen’s Share’’, that policies promoting employee ownership date back to the era of the Founding Fathers and have garnered support from politicians and stakeholders across the political spectrum–from Ronald Reagan to Senator Bernie Sanders.

“Quite simply, policies that promote ESOPs are policies that merit this Chamber’s bipartisan support and I will continue the work of my Louisiana predecessors to ensure retirement security for working Americans.”

July 30, 2014

The updated 2014 Advocacy Kit and 2014 Congressional Visit Kit are now available. Copies of the 2014 Summer Kits can be downloaded from The ESOP Association’s website. Links are below as well for your convenience.

Now is the time to meet with your member of Congress and talk up your ESOP. Really want to make a statement? Invite your member of Congress to your company for a visit. Show them what employee ownership means, first hand.

July 2, 2014

While in DC for the Annual Conference, May 8 & 9, many Association members made visits to their Congressional offices to discuss the value of employee ownership. Some even met up with members of Congress at the airport. Lesson: never pass up the chance to talk ESOP! We’ll be sharing photos below. If you have photos of a Congressional visit, please send it to media AT esopassociation.org. We’ll try to include the information in an upcoming issue of the ESOP Report and on the Association’s Blog.

Thanks to our members for their work to promote ESOPs and employee ownership in America.

July 1, 2014

On June 5, 2014, Schweitzer Engineering Laboratories, Inc. (SEL) employee owners shared their perspectives on company ownership with Congressman Peter Roskam (R-IL) when he visited the company’s Fault Indicator and Sensor Division in Lake Zurich, Illinois.

This is Congressman Roskam’s second visit to SEL’s Lake Zurich facility. Last year, the Congressman toured the manufacturing floor and learned about SEL and the products and services it provides for power systems around the world. This time he watched a distribution automation smart grid demonstration and spoke with some of the 95 employee owners about the company’s ESOP.

Senior Manufacturing Supervisor Jose Perez, who has been with the company for nearly 25 years, said when SEL became employee-owned he went from just having a job to being an owner. Human Resources Generalist Linda Coleman, an employee for more than 29 years, noted she works with happier people in an employee-owned company, calling the retirement security “a blessing.”

Congressman Roskam indicated his strong support for ESOPs, which can help employees save for retirement, and Roskam encouraged those in attendance to continue talking about the benefits of ESOPs with their coworkers.

(Washington, DC) June 25, 2014: “Today’s Supreme Court decision that says Congress’s near 40 year history of promoting employee ownership does not protect fiduciaries of employee stock ownership plans, or ESOPs, from lawsuits triggered by company stock price declines, is a disappointing mish-mash,” said ESOP Association President, J. Michael Keeling.

President Keeling’s statement is in response to the Court’s decision in Fifth Third Bancorp v. Dudenhoeffer. Congress has sanctioned ESOPs since 1974, and since the Moench decision in the mid-1990s, and thus the so-called Moench presumption, that lower Federal courts have all upheld, created a presumption that the ESOP fiduciary should hold company stock unless the company was collapsing. It is this pro-ESOP position the Court overruled in today’s case. Part IV of the decision, relevant primarily to publicly-traded companies, sets forth standards for future lawsuits to be used by lower Federal Courts that strongly suggest that “dumping” company stock from the ESOP is not required when share price declines, and leaves a more muddied guideline for a publicly-traded company fiduciary acquiring more shares for the ESOP when the share price is declining. The Supreme Court gives no standard for the “extent” of decline that would perhaps require halting the acquisition of shares.

“So even though Part IV of the decision is not a flat out requirement that the fiduciary dump the company stock, or quit acquiring company stock for the ESOP, it is unclear guidance for fiduciaries of non-traded companies with ESOPs, which are 99% of the ESOP sponsors in the U.S., when the share value of the private company declines,” said Keeling.

In sum, how this opinion affects ESOP plan sponsors is a mish-mash: more guidance on when a fiduciary of an ESOP is not prudent when acquiring stock for the ESOP, and almost a clear statement that dumping the stock on the market is not prudent, while leaving fiduciaries of non-traded companies with ESOPs, which are nearly all the ESOPs in the U.S., without guidance. It will probably result in more lawsuits.

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

H.R. 4837 is similar to S. 742, which was introduced in early 2013 by a bi-partisan group of Senators led by Senator Ben Cardin (D-MD). H.R. 4837 would amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of employee stock ownership plans (ESOPs) in S corporations.

“Research proves that ESOPs are more profitable, more productive, and provide sustainable jobs. We need policies to encourage employee stock ownership, and the proposed policies in H.R. 4837, modest in approach, should address core social issues such as adequate retirement security and making sure working Americans have an ownership stake in our capitalistic system,” stated ESOP Association President, J. Michael Keeling.

Keeling continued, “It is extremely pleasing to see these House members, all members of the House Ways and Means Committee, four Republicans and four Democrats, stand up for employee stock ownership through ESOPs. The ESOP Association notes its appreciation for the leadership role of its ally in the employee ownership community, the Employee-Owned S Corporations of America, in championing this new pro-ESOP legislation.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

June 4, 2014

On April 2, 2014 Missouri State Representative, Noel Torpey (R), introduced Missouri House Bill No. 2268, which authorizes a tax credit for companies with an ESOP. From the proposed bill: “This bill authorizes employers a tax credit of 10% of the amount contributed to an employee stock ownership program. The credit is not refundable and cannot be sold or transferred. The credit can be carried forward up to three years. The credit is capped at $10 million annually and $500,000 per employer.”

In recent years, a similar bill became law in Iowa and such a bill is pending the New Jersey legislature.

“As I’ve said before, it’s very encouraging to see states considering bills to facilitate ESOP creation,” said ESOP Association President, J. Michael Keeling. “Indiana, Iowa, New Jersey, and now Missouri, are leading the way on the state level and clearly more state officers are seeing the benefits that employee-owned companies bring to the local economy.”

May 28, 2014

The following article originally ran as the May 2014 Washington Report column in the ESOP Report. The ESOP Report is the newsletter of The ESOP Association. The full issue can be found on the Association’s website under Meet & Learn.

One thing that inside the beltway lobbyist types brag about is how they keep the grass roots, the voters, in a member of Congress’ district informed, and armed with tactics to make the case for the law[s] important to their jobs. Common is intelligence provided to an association’s reader about a piece of legislation of interest, talking points boiled down to one page or less, and when appropriate, some background on the member’s prior record on issues of interest. For example, at the recent 37th Annual Conference, the Association’s Washington staff provided attendees with a booklet, with perforated tear out pages to leave off when visiting a member of Congress, plus listings of members who were sponsoring pro-ESOP legislation, and a reminder to be gracious when acknowledging that Chair of Ways and Means Committee Dave Camp’s [R-MI], massive tax reform proposal did not reduce current law benefiting ESOPs and ESOP participants.

But, on April 11, 2014, Shawn Moody, President of Moody’s Collision Centers, Inc. in Gorham, ME, and his fellow employee owners, put on an event for Maine’s senior Senator Susan Collins that embodied a very, very powerful message of what employee ownership means to the men and women working in Maine ESOP companies.

What did Moody’s Collision do? Beginning in late February, Moody’s notified all the ESOP companies in Maine that are members of The ESOP Association about a “fund raiser” for Senator Collins. In this day and age, it seems that everyone running for Congress will not darken the doors of a fund raiser on their behalf unless tickets are $500 per person, and some of the New York City and Hollywood events run $5,000 per ticket; but not Moody’s — for $25 a person, their conference room event was open to the employee owners of Maine ESOP Association members. Repeat — $25 a person. A true grass roots fund raiser.

When she arrived, Senator Collins saw a room packed with women and men from nine different Maine ESOP companies. Some were dressed for office jobs, even some men in suits and ties. Some were dressed for their jobs on a manufacturing floor — work books, work shirts, khakis. Some had grey hair, or no hair — others were in their twenties.

The positive vibe of ESOPs was in the air.

While Senator Collins has been a consistent, and longtime advocate for ESOPs in the U.S. Senate, when she walked out the door, she knew that ESOPs in Maine represented the people of those ESOP companies — different income levels yes; but all part of the capitalistic system — owners.

A big tip of the hat to the leaders of Moody’s Collision — the New England Chapter’s 2014 ESOP Company of the Year — an example to follow.

May 6, 2014

If you’re joining us for the 2014 Annual Conference in Washington, DC on May 8 – 9, and are planning to meet with your member of Congress while in town, download a copy of the Lobbying Kit. It’s a shortened version of the general Advocacy Kit and contains all the information you need for a successful meeting.

April 4, 2014

On April 3, 2014, Michael Keeling, President of The ESOP Association gives an update following the oral arguments presented to the Supreme Court on Wednesday, April 2, 2014 in the case of Fifth Third Bancorp, et al., v. John Dudenhoeffer, et.al.

March 25, 2014

On February 13, 2014, Congressman Ron Kind (D-WI) was on site to visit W.A. Roosevelt in La Crosse, WI. Congressman Kind spent an hour at the company meeting employee owners and spending time with members from the company’s ESOP committee. W.A. Roosevelt is a leading distributor of quality plumbing, electric, refrigeration, and heating and air conditioning equipment & supplies. W.A. Roosevelt is a division of Dakota Supply Group, a member of The ESOP Association.

March 4, 2014 (Washington, DC) – Today, The ESOP Association expressed disappointment once more over a provision in the President’s Fiscal Year 2015 budget that pertains to employee stock ownership plans (ESOPs). Included in the budget document is a provision to ‘eliminate the deduction for dividends on stock of publicly-traded corporations held in certain ESOPs.’

“Obviously, we are disappointed this provision has been included in the President’s budget,” said ESOP Association President, J. Michael Keeling. “We are baffled by the Administration. How can the Administration preach about creating jobs and then plan to take away a proven policy that sustains jobs? Furthermore, the provision the Administration wants to kill was added in 1984 by Congress to address income inequality by encouraging employee owners to have more income from ownership. It is counter-intuitive. As we’ve said before, research proves that ESOPs, and companies with other forms of employee stock ownership, provide more sustainable employment. The Administration needs to step up and encourage broad-based inclusive capitalism and increase employee ownership to ensure sustainable employment for U.S. workers, and more income for average pay employee owners, not decrease support.”

February 21, 2014

The updated 2014 Advocacy Kit and 2014 Congressional Company Visit Kit are now available on The ESOP Association’s website. Copies of the 2014 Winter Kits can be downloaded from The ESOP Association’s website.

February 12, 2014

ESOP Association President, J. Michael Keeling, provides Association members with an update on tax reform and shares new information he has learned about the general shape of the Ways and Means Committee tax reform proposals. The precise schedule of the Ways and Means Committee is not known; this report is the beginning of learning what the ESOP community may face.

January 10, 2014

This article originally ran in the December 2013 issue of the ESOP Report, the newsletter of The ESOP Association. Archived issues are available on The ESOP Association’s website.

We’re a week + into 2014 but this column is a nice reminder for members of the ESOP community.

Many will recall that in the last quarter of the 20th Century, Alfred E. Neuman, the face of the then famous Mad Magazine, captured the public’s fancy with his slogan, “What, Me Worry?” complete with a silly expression. The ESOP community needs to avoid the “What, Me Worry” view of possible rewrites of the Federal income tax laws that impact ESOP creation and operation because cable news TV keep telling audiences that Congress will not pass a tax reform bill.

The ESOP Association will continue to take a different view, and yes, ESOP advocates should worry about tax laws impacting your ESOP accounts and your ESOP clients until…

Later, this column will give the signal when it’s safe to stop worrying.

Here is an analysis that goes beyond the superficial media reports.

Tax reform is important to the ESOP community without regard to whether the House of Representatives considers tax reform legislation in 2014; without regard to whether the Senate considers tax reform legislation in 2014; without regard to whether tax reform legislation lands on President Obama’s desk in 2014.

Why say it’s important even after saying legislation is not going to be considered by the full Congress and thus never become law in 2014?

Simple — tax law history. Regarding major tax legislation, what the House Ways and Means Committee agrees to, becomes the foundation for what actually makes it to a President, the same year, the next year, or even the next two to four years.

Let’s get specific. In 2014, if the House Ways and Means Committee reports to the full House a tax reform bill that repeals the current favorable tax treatment of S ESOPs, or the cap gains deferral for sale to an ESOP of stock of a privately held C corporation, or the tax deduction for dividends paid on ESOP stock by a C corporation, or the possibility that both principal and interest are tax deductible for payments on a loan to acquire employer stock for the ESOP, or contributions to an ESOP are capped along with all other ERISA dc plans at a level below current law, or any other schemes to raise tax revenue by limiting the benefits of an employer sponsored retirement savings plan, then any of the above in a tax reform bill recommended by the Ways and Means Committee has better than a 50% chance of being law someday. [This sentence was long for a reason — to explain that some provisions of a tax reform bill could impact your ESOP and not be labeled an “ESOP” provision.]

So, during this special time of year, one might welcome the New Year with the false serenity that their ESOPs are A-OK in terms of the year 2014, and back off on the goal of educating, or re-educating, their members of Congress that ESOPs are good for the employees, good for the company, good for the community, and good for the United States.

It is time to toast the New Year, and to rededicate to the principle that persistent repetition is the best policy with regard to making sure our modest national policy promoting employee ownership through the ESOP model is continued.

And to answer the “until” question above, the following words, “Until the Chair of the House Ways and Means Committee says firmly, with no ifs and buts, ‘The Committee will not recommend a tax reform bill in 2014.’” And he just might say no to a tax reform bill at some point in 2014, but why take a nap thinking he will.

January 7, 2014

In the first tax reform update of 2014, ESOP Association President, J. Michael Keeling, provides Association members with an update on tax reform and a new report from the Joint Committee on Taxation that discusses ESOPs. He also touches briefly on the ESOP case before the Supreme Court.

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December 19, 2013

In a final 2013 tax reform, ESOP Association President, J. Michael Keeling, provides Association members with an update on the process and what the ESOP community needs to do in response to coming changes. He also touches briefly on the recent budget resolution and an ESOP case before the Supreme Court. Read The ESOP Association’s statement about the case here.

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December 12, 2013

On November 15, 2013, the employee owners of Restek Corporation in Bellefonte, PA met with Senator Patrick J. Toomey (R-PA). The Senator toured the company’s facility and Restek employee owners thanked the Senator for his support of ESOPs and employee ownership in America. The Senator is a current co-sponsor of S. 273 — a bill introduced in early 2013 by Senator Kelly Ayotte (R-NH) to stop the Department of Labor’s proposal on the definition of a fiduciary. A short interview with the Senator on the value of employee ownership can be seen here.

December 4, 2013

On this blog in July 2012, we talked about Judson T. Bradford of the W.J. Bradford Paper Company, now the Bradford Company, located in Holland, MI. Mr. Bradford began his ESOP journey in the 1950s and for well over 30+ years championed the ESOP cause among local and national leaders which led to the introduction of what is probably the first pro-employee ownership bill in Congress and helped to get employee ownership on the 1968 Republican Party platform. In 2003, the ESOP Report covered Mr. Bradford’s work in this article.

“Saying that Judson is an unsung hero of the ESOP cause is an understatement,” said ESOP Association President, J. Michael Keeling. “Without people like him, who saw and understood the vision of the ESOP’s founder, Louis Kelso, the concept of employee ownership wouldn’t be the same today.”

Some of Mr. Bradford’s letters and work surrounding ESOPs was covered in this blog post from July 2012. The notebook Mr. Bradford shared with the Association in 2003 is full of letters to several notable individuals including President Gerald Ford, Michigan Governor George Romney, father of the 2012 Republican Nominee for President, Mitt Romney, Jacob Javits and Guy Vander Jagt, prominent members of Congress at the time. It also contains information on speeches and the first bill introduced in the U.S. Congress that supported the concept of broadened employee ownership. It’s worth a look and it’s an amazing story documented by a man with a belief in the movement.

As it turns out, Mr. Bradford is still working to further the ESOP cause. Michael Keeling recently had the opportunity to speak with Mr. Bradford who told Mr. Keeling about his efforts to include the concept of broad-based employee ownership in the academic world. He is urging the leadership of GVSU, Michigan’s Grand Valley State University, to focus on the growing body of knowledge about employee ownership. Work the Employee Ownership Foundation is doing as well to encourage the teaching of broad-based ownership in the academic world.

“It really is wonderful to know that he is still working for our cause. We have some very deep roots in our ESOP community and we’re moving forward every day,” stated Keeling. “Judson’s dedication to broad-based ownership is on par with leaders such as George Washington, Thomas Jefferson, John Adams, James Madison, Russell Long, and Louis Kelso, among many others that have been discussed in the new book called The Citizen’s Share which talks about the history of the employee ownership movement.”

The Citizen’s Share: Putting Ownership Back into Democracy was released by Yale University Press on November 26, 2013 and is co-authored by Joseph R. Blasi, Douglas L. Kruse, and Richard B. Freeman. More information about the book can be found here.

November 26, 2013

This article originally ran as the Washington Report column in the November 2013 issue of the ESOP Report, the newsletter of The ESOP Association. The ESOP Report newsletter is available to Association members on the website.

Maybe the reader is tired of reading it — or as in the case of Las Vegas, or one of the many Chapter conferences since August — tired of hearing it. But, the tax reform process has begun, and it is real. There are those who think all the talk about tax reform and the potential impact on ESOPs is malarkey because this Congress, and this Administration, cannot agree on the basics, such as a farm bill, or a highway bill. Who would ever dream a tax reform bill would go to President Obama? Sort of a “what me worry” attitude.

To repeat the basics — since early September, the House tax committee’s Republican members have been meeting in closed door sessions regularly to decide on how to raise approximately $10 trillion in new taxes over 10 years in order to lower the top rate for businesses and individuals to 25%, and to lower the top rate for all middle and lower income persons to 10%. In short, to lower tax rates drastically, but to not increase the Federal deficit, means “new” revenue has to be collected by eliminating, or drastically reducing, nearly all special tax laws, such as those benefiting ESOP creation and operation. [Other provisions that might have to go, or be reduced, are home mortgage deductions, charitable giving deductions, local government tax exempt bonds, and capital gains differential, for example. In other words, everything from super big, to middle sized, down to small sized tax benefits. ESOPs would be in the middle sized small benefit at an estimated $2 billion a year.]

As of this writing, the committee, the House Committee on Ways and Means, has not released its final recommendations, but a release is anticipated.

Cynics who say that a tax reform bill is not something to worry about are correct for two reasons — 1.) what the Ways and Means Committee does with legislation will probably not attract Democratic votes, and 2.) it will also not result in President Obama, nor the Senate, agreeing on the Ways and Means Committee bill.

As has been said over and over and over, however, — and how about saying it again over and over and over — Congress will eventually pass a tax reform bill. Whoever is President will sign such a bill, be it President Obama, or his successor. And that bill will, if past is prologue, look very much like the first one passed out of the House Ways and Means Committee. This fact is why what is happening now is important to all ESOP advocates.

The ESOP community must fully engage in telling the wonderful success story of how the vast majority of ESOP companies are providing jobs, good sustainable jobs; but most importantly, displaying the unique “vibe” present in the overwhelming majority of ESOP companies.

Sure, if ESOPs get hurt in the provisions of a House Ways and Means Committee bill, there will still be a chance to protect ESOPs in the Senate process. [Consider the trivia question put to Las Vegas Conference attendees recently — what do the last four Presidents have in common? Answer: They all lost their first race to be a member of Congress. Did they give up their political careers as a result? Obviously not, as all became President.]

But why play with fire? The tax reform process is underway, big time, in the House Ways and Means Committee. Now is the time to convey the view that Congress should preserve and promote the best jobs program in America — ESOPs.

November 14, 2013 (Washington, DC) – In a disappointing turn of events, the Obama Administration has once again taken a negative position in regard to employee stock ownership plans (ESOPs).

Early in 2013, the Supreme Court asked the Solicitor General to comment on technical questions regarding stock-drop cases and to assess whether these types of cases should be brought to the attention of the Court. In a rather strange move, the Solicitor General asked the Court to focus only on a matter concerning ESOP plan fiduciaries, and whether they are entitled to the presumption that they have acted in the best interests of plan participants by investing in company stock.

“Congress, and former Presidents, has consistently encouraged ESOPs for over 30 years,” said ESOP Association President, J. Michael Keeling. “The presumption that ESOP plan fiduciaries act prudently when company stock is the ESOP’s primary asset was decided by the Third Circuit in Moench V. Robertson, a 1995 case that plaintiffs won, making it clear bad actors do not prevail but also acknowledging Congress has endorsed ESOPs and Presidents have signed pro-ESOP laws. This pro-ESOP Moench position has been upheld by a majority of Federal courts for years, and one can only presume from the Solicitor General’s question of Moench that the Justice Department is looking to harm ESOPs.”

There is concern that if the Supreme Court agrees with the Administration, there will be a rise in lawsuits challenging ESOP companies. Numerous anti-ESOP lawsuits would do harm to ESOP companies and their employee owners.

“Since 2010, the ESOP community has been fighting a proposed regulation from the Department of Labor regarding the definition of an ESOP fiduciary. The Solicitor General’s attack on ESOPs is one more dig from an Administration that has demonstrated negative views of employee ownership as evidenced by its budget proposal justifying the reversal of a pro-ESOP tax law because, according to the Administration, employees working for companies with more than 10 – 15 employees are incapable of understanding how their actions impact their company. It’s counter-intuitive to hear the Administration preach about creating jobs and then try to take away a proven policy that sustains jobs,” stated Mr. Keeling.

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

October 31, 2013

This article originally ran as the Washington Report column in the October 2013 issue of the ESOP Report, the newsletter of The ESOP Association. The ESOP Report newsletter is available to Association members on the website.

There is no question that the mess in D.C. with the Congress and the President not able to keep basic government functions operational causes most people to throw their hands up and say, “Don’t bother me about possible legislative action involving ESOP laws; Congress cannot even keep the government’s doors open. Fie on all.”

This reaction dominates citizen views, be they left, right, middle of the road, or all of the above.

This column has often said that the effective advocate has to understand the Big Picture to win a specific campaign for ESOPs. But, as Ralph Waldo Emerson said, a foolish consistency is the hobgoblin of small minds.

So, ESOP advocates will be taking a very risky posture to tune down outreach to their members of Congress on the grounds that Congress will do nothing to alter current tax laws to the detriment of employee owners.

Number one, the Congressional tax committees are not Congress. What they do in developing new tax laws is not 100%, or even 50%, determined by the Congressional and White House gridlock.

Number two, what the tax committees do is 90% of the final tax law changes that will be included in a reformed tax code when action by Congress is finally taken.

In other words, the tax committees may finalize their versions of a new tax bill in 2014, and Congress may not send a new tax reform proposal to the President until 2015/2016 or even beyond. But that 2015/2016 proposal will be very likely be nearly the same as what the tax committees agreed to in 2013/2014.

Number three, what is the negative outcome of ESOP advocates continuing to make the case that the Federal tax code should continue a modest national policy to continue the best jobs policy in the U.S. because ESOP companies in the vast majority of instances are more productive, more profitable providing locally-controlled, sustainable jobs with excellent retirement savings benefits? There is none.

Some ESOP advocates also explain their sitting on the sidelines because her or his member of Congress is not on the Congressional tax committees — the House Ways and Means Committee and the Senate Finance Committee. Constituent to member advocacy is the most effective advocacy work possible; the second most effective advocacy work is Congressional member to Congressional member. In other words, a Republican member of Congress not on Ways and Means advocating for ESOPs because her or his constituent has asked him or her to do so with a Republican on the tax committee, especially if from the same state or region, is very effective. In other words, a pro-ESOP statement from a Texas Republican not on Ways and Means to a Texas Republican on Ways and Means or a New England Democrat not on Ways and Means to a New England Democrat on Ways and Means is priceless.

In sum, do not let disgust with partisan shenanigans in D.C. back you off advocating for ESOPs with your Congress people.

Be safe; not sorry.

October 21, 2013

This article ran as the Washington Report in the September issue of the ESOP Report. The ESOP Report is the newsletter of The ESOP Association. The ESOP Report newsletter is available to Association members on the website.

People who care about ESOPs, who are members of the Association, who do not wish to take a chance and dismiss, like TV pundits do, talk of ‘Congress will never do tax reform’ are asking, “What can we do to protect ESOPs and what is the Association doing to protect our ESOP?”

For over 20 years, the answer to the ‘what can we do’ question has remained the same, and will remain the same — tell your ESOP story directly to an elected official who visits your ESOP company is first and foremost the way to protect your ESOP, and your company.

And what can the Association do revolves around the circle set forth on the left:

In other words, to win for ESOPs, the Association needs members, and needs the number of members to grow. Members are educated by various methods and primarily on how to make their ESOP all it can be, and how to reach as many employee owners as possible. When the company succeeds, because of its success, its performance, its unique ownership culture, then the Association and its members’ advocacy work persuading members of Congress to continue a positive policy for ESOP creation and operation is going to succeed.

Fewer members, declining membership means less education on how to create the magic of an ESOP company that has caused elected official after elected official to learn firsthand how positive employee ownership through the ESOP model works. Less education means that the positive impact of an ESOP company dissipates, and macro research on the performance of an ESOP company declines. Fewer magical ESOP companies means fewer high performing ESOP companies as they are not tapping the reservoir of knowledge available at Association meetings and networking. The fewer companies, with not so stellar track records means that the advocacy message becomes less heard, and less impressive.

Sure these big picture messages are supplemented in the challenging times of ESOP cynics trying to denude ESOP tax benefits in the name of a simpler tax code, with lower tax rates. But the Association is not sparing any of its resources in fielding government process experts, who know the nuances of how laws are made — in other words, fielding a team of inside the beltway veterans of legislative campaigns involving tax laws — who provide intelligence that triggers timely, and targeted advocacy messages to key members of Congress by grass roots, high performing ESOP companies.

But never ever think that winning for ESOPs is about how many members the Association has, how many members move their companies to high performance, or how much advocacy messaging is done. Membership without education does not win. Education without advocacy does not win. Advocacy without membership does not win, and the circle of victory can be described back and forth on these three mega traits in as many permutations as can be done with three interconnected elements.

While at SEL, Congressman Roskam toured the manufacturing facility and learned more about SEL and the products and services it provides for power systems around the world. The Congressman spoke with employees about tax reform and the company’s ESOP. The group also discussed manufacturing in America and the importance of immigration reform.

Congressman Roskam noted that “ESOPs are a huge success,” identifying retirement saving as a key element. “Companies thrive on predictability,” he said.

Dan Clifford, general manager of FISD, agreed, noting that “certainty for business is huge” and the lack of it over the past few years has been troubling.

His visit began in the 874 building where the company produces mainly ground support equipment for the airlines (crew and passenger stairs, baggage carts, and cargo dollies) viewing the different areas of production, meeting employees, and getting a feel for the products. The tour continued to the 862 manufacturing facility, which produces repair parts for the GSE, Conveyor and Military Divisions, again meeting employees along the way and seeing the newly renovated office area. At the 631 building, which produces specialized conveyor equipment, Congressman Peterson toured engineering and accounting.

A presentation was given in the Board Room on the importance of ESOPs and keeping them intact, especially through tax reform.

Senator Amy Klobuchar Visits Diversified Plastics

On September 20, 2013, Senator Amy Klobuchar (D-MN) held a press conference and toured the facilities of Diversified Plastics, Inc., an ESOP Association corporate member located in Brooklyn Park, MN. While on the tour Senator Klobuchar watched and talked with many employee owners as they showed her their part in completing the custom plastic injection molding jobs that Diversified Plastics runs each day.

Following the tour and prior to Senator Klobuchar holding her press conference on the shop floor, with the employee owners of Diversified Plastics behind her, Annette Lund (VP of Diversified Plastics) gave the history of Diversified Plastics. Started in 1977 with very little resources by Jim Dow, he and his employees expanded the business greatly over 34 years before he made the decision to begin looking at his retirement options. He had several good offers from competitors but it disturbed him that those who were interested in purchasing the company all wanted to close down the factory and move the machines to other plants. In that scenario, most, if not all, the employees would have lost their jobs. Ultimately he chose the route of keeping the business in the city where he started it and rewarded the employees who had been with him all those years by selling 100% of the company to the ESOP.

Following Annette’s comments, Senator Klobuchar began her press conference with local media members present to publicly show her support of ESOPs and pro-ESOP legislation, specifically S.742 – the Promotion and Expansion of Private Employee Ownership Act of 2013. The Senator stressed that ESOPs are a vital part of expanding the U.S. work force and keeping jobs local to communities such as what occurred at Diversified Plastics.

Steve Storkan, a member of The ESOP Association, followed Senator Klobuchar’s remarks by thanking her for her support and reminding all who were in attendance the power of employee ownership and how much better a company can be when employees own a piece of the rock. The morning ended with more discussion between the Senator and the employee owners with many of them thanking her for her support.

September 26, 2013

Five days and counting to…Employee Ownership Month! If you’re looking for a way to celebrate, why not invite your member of Congress to visit your company? If you need some starter ideas, check out the Advocacy Kits on the Association’s website.

Following are a few Congressional visit wrap-ups members shared with the Association. If you have news to share, please send an email to media@esopassociation.org. We’re always interested in hearing from members.

Senator Ayotte Visits Hypertherm

On September 5th, Senator Kelly Ayotte (R-NH) visited ESOP Association member, Hypertherm, at the company’s newest facility in Lebanon, NH. The Senator, who met with Hypertherm employee owners on a previous occasion, stated that she would like visit again.

According to an email from Hypertherm employee owner, Carey Chen, CFO & VP/GM Light Industrial Businesses, “After introductions, the first thing she wanted to do was discuss ESOPs. She discussed the bill she introduced and the bipartisan support she has been able to get. We thanked her for the pro-ESOP legislation she championed and expressed how proud we are that she represents our home state.”

After a tour of Hypertherm’s new 156,000 sq. ft. facility, a picture was taken in the cafeteria.

To explain the sign in the background: Hypertherm’s ESOP is the HSOP (Hypertherm Stock Ownership Plan). The GSVP is the company’s global stock value plan for our international associates. The slogan which is partially cut off reads, “Work Like an Owner, Think Like a Customer.” The “H” in the center is the Hypertherm logo.

Congressman Emanuel Cleaver, II toured the office of Citizens Telephone Company/Citizens Cablevision on September 4, 2103. In 2013, Citizens Telephone is celebrating its 105th year in continuous operation. The company is also celebrating its 25th anniversary as an employee-owned company. Congressman Cleaver toured the company’s facilities and met several employee owners during his visit.

In early August, Congressman Cicilline (photo below) met with the employee owners of Gripnail, located in East Providence, RI. Employee owner, Chris Ryding, COO, said the meeting was a success. Information about the ESOP and what it has brought to the company was shared with the Congressman and he was asked for his support of pro-ESOP legislation.

September 23, 2013

Earlier this month, we highlighted two Employee Ownership Month Proclamations that were shared with the Association. Links to the Montana and Nevada proclamations are here. Thanks to Sletten Construction Companies which worked with Montana Governor Steve Bullock and Nevada Governor Brian Sandoval to declare Employee Ownership Month in Montana and Nevada.

We also wanted to note the most recent proclamation from Governor Scott Walker of Wisconsin. ESOP Association member, Park Manor, Ltd., located in Park Falls, WI worked with Governor Walker’s office to declare October Employee Ownership Month in Wisconsin. Lt. Governor Rebecca Kleefisch also stopped by the Midwest Chapter Conference this month to announce the proclamation.

September 13, 2013

We thought we’d share links to the following Employee Ownership Month Proclamations which were shared with the Association. As additional proclamations are shared with the Association, we’ll share links with readers.

If you would link information and sample text for a proclamation, please download a copy of the 2013 Press & Event Planning Kit from the Association’s website.

Sletten Construction Company, which also has an office in Nevada, worked with Governor Brian Sandoval’s office to declare October Employee Ownership Month in Nevada as well. Proclamation from Governor Sandoval.

ESOP Association Blog – government affairs information is posted here as it happens. There is an email subscription feature on the blog frontpage. You’ll be notified by email when new information is posted. The RSS feed is another option for updates.

August 1, 2013

On July 25, 2013, Senators Mitch McConnell (R-KY), John Thune (R-SD), Kelly Ayotte (R-NH), and Roy Blunt (R-MO), sent a letter to the just confirmed new Labor Secretary, Thomas Perez, about the Department’s proposed regulation that would mandate all private ESOP company appraisers be ERISA fiduciaries.

In the letter, the Senators state: “We cannot overstate the detrimental effect the 2010 proposed regulation would have on private ESOP companies that have a successful record of maintaining much needed jobs and providing generous retirement benefits for part-time, low-wage, and middle class workers. The Labor Department’s efforts to expand the definition of fiduciary to include independent ESOP appraisers will only hurt the very employees it seeks to protect.”

“We thank Senators McConnell, Thune, Ayotte, and Blunt for their strong support of ESOPs and for taking this step in emphasizing to the DOL just how harmful this proposed regulation is to the ESOP community,” said ESOP Association President, J. Michael Keeling. “These Senators are major leaders in the U.S. Senate — Senator McConnell, the Republican Leader; Senator Thune, Chair of the Senate Republican Conference; and Senator Blunt, Vice Chair of the Senate Republican Conference. And of course, Senator Ayotte, who first took up the ESOP cause protesting the DOL proposal, has now become a national figure in American politics.”

July 26, 2013

The ESOP Association, as a member of the Coalition to Protect Retirement and the Retirement Savings Network, recently signed onto two respective letters, along with other employer sponsored benefit organizations, that ask members of the Senate to preserve the tax incentives which encourage American workers to save for retirement while considering tax reform. The letters were sent to all members of the U.S. Senate.

“It’s important for the ESOP community to continue to work to maintain positive relationships and cooperate with other trade groups interested in preserving sound and productive retirement savings plans as encouraged by tax law,” said ESOP Association President, J. Michael Keeling.

July 24, 2013

The following is a reprint of the Washington Report column which ran in the July 2013 ESOP Report, the newsletter of The ESOP Association. The ESOP Report is a members only publication. Additional information can be found here.

It sounds repetitious, but the Association has posted on its blog, on its Facebook page, on its LinkedIn group, in special email bulletins, and wherever it can be placed, that events are shaping up in our national government that present the greatest policy threat to positive policies for ESOPs since 1989. [Some ask, what was the threat in 1989? While ancient history so to speak, in 1989 the House Ways and Means Committee had before it a proposal made by the Chair at the time, the late Dan Rostenkowski of Illinois, to repeal all special tax benefits for ESOP creation and adoption created in the tax bills of 1984 and 1986. This threat was beaten back when the full Committee adopted an amendment by former Congressman Beryl Anthony of Arkansas, aided by former Congresswoman Nancy Johnson, and this is important to note, endorsed by the Treasury Department under President George G.W. Bush, that took down the effort to eliminate special ESOP tax benefits. Since 1989, there have been occasional “disputes” challenging the ESOP community over a proposed regulation, or even a proposal modifying one ESOP tax benefit — 1994, 1995, and 2001 — but never a challenge to the entire ESOP package.]

But experts in the human resources profession always remind us that just as “you get tired of saying something one more time, someone is listening for the first time.”

So, the House and Senate tax committees are deep in a process to reform the Federal income tax code. They are not just talking, nor are they waiting to have the leaders of the House and Senate promise them that any tax reform bill they develop will be considered on the floor of the House and/or Senate. The Chairs of the tax committee, Congressman Dave Camp of Michigan, House Ways and Means Committee, Senator Max Baucus, Senate Finance Committee Chair, both have a process for developing legislation sometime in the fourth quarter of this year.

While they are following processes that are not typical of how major tax bills were developed in the past, the goals are the same as evident in the past — eliminate special income exclusions, credits, deductions, and deferrals in the current tax laws, take the additional tax money raised to cut the tax rates on income, personal rates and corporate rates, and in doing so make the tax code more simple, in other words, easier to follow in calculating taxes owed. [Media likes to hoot and holler that the two parties will not come together under this approach because supposedly the Democrats want to use the extra revenue from eliminating special tax laws to collect more money to lower the Federal debt, whereas Republicans want to use all the new revenue to lower tax rates. Yes, these two different views of what to do with the extra revenue exist, but there is a great deal of common ground between the two parties in the tax reform debate.]

Even though The ESOP Association has become a “Johnny-one-note” in communications with members about being engaged to tell elected Federal officials about the power of employee ownership through the ESOP model — repeat over and over after telling the good story of the ESOP company that data proves overwhelmingly that in the vast majority of instances, ESOP companies are more productive, more profitable, providing sustainable jobs controlled locally in the U.S. than non-ESOP counterparts — and in doing so, hopefully have that member of Congress be willing to say, “OK, do not harm ESOPs with misguided steps to lower tax rates when the best jobs policy is having employees be owners in their companies where they work, and also make income better for the working men and women of America.”

Stay in touch with the Association’s website where you can find all the up-to-date background materials on how to save your ESOP; watch for blog postings, and if just now getting engaged, read the blog archives; watch for YouTube video updates.

Remember, if ESOPs are harmed in the process to developing new tax law, one can spot the blame by looking in the mirror — no exceptions.

July 19, 2013

We received the following email from the American Institute of CPAs (AICPA) earlier this week and wanted to share. From their website, the AICPA is the world’s largest member association representing the accounting profession, with nearly 386,000 members in 128 countries and a 125-year heritage of serving the public interest. The email follows:

The American Institute of CPAs wrote Congress on July 10 in support of legislation (S. 273 and H.R. 2041) that would block the U.S. Department of Labor’s (DOL) 2010 proposal to change its definition of fiduciary under the Employee Retirement Income Security Act of 1974 to include appraisers of employee stock ownership plans (ESOPs). The AICPA has repeatedly argued that, rather than expand the definition, as proposed by DOL, rules should be implemented to ensure that only qualified individuals prepare valuations for benefit plans and that individuals follow recognized valuation standards.

On behalf of the nearly 386,000 members of the American Institute of Certified Public Accountants (AICPA), I am writing to encourage you to cosponsor S. 273/H.R. 2041, a bill that would prohibit the Department of Labor (DOL) from moving forward on its re-proposal to expand the definition of a fiduciary under the Employee Retirement Income Security Act (ERISA) to include independent appraisers of Employee Stock Ownership Plans (ESOPs).

Many CPAs perform business valuation services for ESOPs by providing an independent, third-party objective appraisal of the stock of employer companies that sponsor ESOPs. Many of these appraisals are also used for other purposes including satisfying the Internal Revenue Service (IRS) requirements related to the ESOP’s tax-exempt status. The Internal Revenue Code (IRC) requires that ESOP valuations be obtained from an independent appraiser at least annually. If the DOL were to redefine an ERISA fiduciary to include ESOP appraisers an inherent conflict would arise between the DOL and IRS requirements for ESOP appraisers. An ERISA fiduciary must act solely in the interest of plan participants and their beneficiaries and therefore cannot provide an independent, third-party objective perspective.

The DOL has not demonstrated a need for such a broad and far-reaching change from more than 35 years of established policy. The DOL proposal is a draconian response to a very small number of deficient ESOP appraisals. In testimony before Congress and responses to Congressional inquiries and private requests from the AICPA, the DOL has provided only a few cases of deficient appraisals over the past 20 years out of tens of thousands of ESOP appraisals performed annually. Further, our analysis of the DOL cases involving CPAs found that in the vast majority of these cases the courts found the appraisers’ work to be satisfactory but that the plan trustee improperly used the work of the appraiser.

The DOL has announced plans to re-issue its previous 2010 proposal later this year. The AICPA is concerned that the new proposal will essentially mirror the previous proposal and, if finalized, will unnecessarily subject all ESOP appraisers to an increased legal liability and require them to purchase expensive fiduciary liability insurance. This would, in turn, increase the costs to all ESOP plans and reduce the amount available for participants and beneficiaries.

The DOL’s concerns with the quality of ESOP appraisals could be addressed with a far more targeted solution. Unlike other federal agencies including the IRS and Small Business Administration (SBA), the DOL, does not have any minimum requirements or standards for appraisers. The AICPA and other stakeholders have suggested in comment letters and testimony that the DOL implement rules to ensure that only properly qualified individuals perform ESOP valuations and those individuals follow recognized valuation standards. Requiring ESOP appraisers to have specialized training, credentials, and to adhere to professional standards would protect participants and beneficiaries in a cost effective manner. This approach would be consistent with the IRS and SBA rules for appraisals and thus avoid the potential for conflicting requirements across federal agencies.

The AICPA fully supports the goal of protecting the interests of plan participants and beneficiaries of employee benefit plans. Ensuring the quality of sponsor company valuations is critical to making prudent decisions regarding plan investments.

Thank you for considering cosponsorship of S.273/H.R. 2041. Please feel free to contact Diana Huntress Deem, Director, Congressional and Political Affairs Team at 202.434.9276 if you have any questions.

Sincerely,

Barry C. Melancon, CPA, CGMA

President and CEO

cc:

Members of the Senate Health Education Labor and Pensions Committee Members of the House Education and Workforce Committee

July 17, 2013

Today, ESOP Association President J. Michael Keeling, will participate in the Senate Small Business Committee Tax Roundtable which will review key provisions of current tax law that impact small businesses. In particular, Mr. Keeling will be responding to the Committee’s specific inquiry as to what current tax laws that encourage the creation and operation of employee ownership through the ESOP model should be retained.

Mr. Keeling will emphasize that the modest incentives for ESOP creation and operation have resulted in employee owned companies that, as research has consistently shown, are more productive, more profitable, and provide locally-controlled, sustainable jobs in the United States. In particular, he will bring to the Committee members’ attention the General Social Survey of 2010 which evidenced that employee stock owned companies laid off employees during the Great Recession at a rate of 2.6% whereas conventionally-owned companies laid off employees are a rate of 12.1%. He will note that the evidence shows that encouraging employee ownership is a successful jobs policy, and Congress should enhance these modest policies to boost employee ownership, which can also address the growing income gap between the working men and woman and the super-rich.

He will conclude his formal remarks with the comment that the growing income inequality is creating an us versus them atmosphere in the United States, which is not good for a democratic society with a republican form of government.

July 16, 2013

In a new report, the Center for American Progress discusses the idea of inclusive capitalism and how its proven track record has helped companies and employees grow wealth in the U.S. It also notes the necessity for greater dialogue among policy makers and ways to promote inclusive capitalism.

The Center for American Progress defines inclusive capitalism as “…granting workers ownership stakes in the company or a share of its profits based on workers’ collective performance…” The report names ESOPs as one of the effective financial incentives used to reward employees and generate wealth.

“When employees have stakes in the companies they work for, studies show that productivity and profitability increase, the companies experience less employee turnover, and jobs stay in the community,” said ESOP Association President, J. Michael Keeling. “We agree. Policy makers need to step up and encourage broad-based inclusive capitalism and increased employee ownership to ensure sustainable employment for U.S. workers.”

This new Center for American Progress report, Growing the Wealth: How Government Encourages Broad-Based Inclusive Capitalism, was authored by David Madland and Karla Walter. It was released on April 2, 2013. The report, and additional information, is available on the Center for American Progress’s website.

July 9, 2013

The Senate has officially begun a process to identify what to include or eliminate in tax reform. Following is information that can be used as a sample letter, email, and/or the basis for a phone call. If you are sending an email, please be sure that someone in the Senate office is expecting the email.

If you would like additional information about the tax reform process, please visit The ESOP Association’s Blog here.

If you would like to download the following, please use the following link to download the Word file – Save ESOP Tax Law Letter.

Suggested Letter/Email/Phone Message to Help Save ESOP Tax Law

Dear Senator ________:

[Name of Company] is owned (by X%) by its employees through an employee stock ownership plan, or an ESOP.

We have learned that Senators Baucus and Hatch have requested that you communicate to them what special tax law provisions you would include in our nation’s tax laws if you were drafting a new tax code for the Federal government if starting from scratch.

[Name of company] and its x employees have benefited from its ESOPs. [Here you may wish to set forth brief statement[s] how your ESOP has benefited your company and your employees.].

And we are not alone, as there are pages and pages, charts after charts, that prove ESOP companies are good for the U.S. economy, are fair by making middle class employees capitalists, and provide excellent retirement benefits. Among these 35 plus years of research and surveys of ESOP companies and their employees, the General Social Survey of 2010 evidenced that during the Great Recession employee stock owned companies laid off employees at a rate of 2.6% whereas conventionally owned companies laid off employees at a rate of 12.1%. In sum, promoting ESOP creation and operation is the best jobs policy in the U.S. as the evidence is that the vast majority of ESOP companies are more productive, more profitable, providing locally controlled jobs that through ownership provide better retirement savings benefits than non-ESOP companies.

We at [name of company] thus respectfully request that you communicate to Senators Baucus and Hatch that you believe our national tax policy should continue to encourage employees stock ownership through ESOPs.

Your consideration is appreciated.

Sign by [Senior Executive], or [Employees]

Email: Only if you have a contact in your Senator’s office, in other words, someone you have talked to before in a personal visit, or via telephone, or have emailed before and there was a response, the same message can be used in an email to the person with whom you had previous contact.

Telephone call: There are two kinds of telephone calls, and in each you will be talking to, or leaving a message for a staff person.

Type Call 1: This call is your initial communication to the Senator’s office. As the person answering the phone, ask if you may speak to the person who is responsible for issues arising from the Federal income tax laws.

If you speak to that person, repeat the message in the suggested letter.

In all probability, you will be placed in that person’s voice mail. Leave a message similar to the suggested letter, and your name and request a return phone call.

If after a week or so there is no return call, call again, and politely repeat the message, and politely ask if the Senator has decided what to convey to Senator Baucus and Hatch.

Type Call 2: This call is made two weeks or so after sending in your letter or email. In this call, you politely ask, if you have received no response to your letter or Email, if it was received. If not, ask if you can Email a copy, or Email again, or fax it. If yes, ask if the Senator has decided to convey any position to Senators Baucus and Hatch with regard to ESOP laws.

July 8, 2013

On February 11, 2013, Senator Kelly Ayotte (R-NH) introduced S. 273, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans (ESOPs). This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

July 3, 2013

Back in May, ESOP Association President, J. Michael Keeling, provided members with an update on tax reform. A month later and new concerns have emerged. The Senate has officially begun a process to identify what to include or eliminate in tax reform. Below is a second update with details on what members should be doing to protect their ESOP as the tax reform process moves forward. As noted in the commentary, The ESOP Association will be posting information to the website (check here for updates and latest information) and will post links and information on the blog and all our social media as well.

Information on suggested communications to your Senators will be shared with Association members next week.

June 21, 2013

ESOP company leader Barbara Schindler, President and COO, tells House Committee on Small Business that the employee ownership through an ESOP is Golden Artist Colors, Inc.’s New Berlin, New York, key to its recent success, because “When employees are treated like owners they tend to act like owners.” (click to read entire testimony) “Ms. Schindler’s testimony fly’s in the face of the Administration’s position that ESOPs are too risky for employees in companies with more than 10 or so employees because the employees can’t impact the performance of the company where they work,” said Michael Keeling, ESOP Association President.

June 17, 2013

ESOP Association News

The following release was sent out by The ESOP Association today. We’re sharing here with readers.

For Immediate Release: June 17, 2013

Senator Kelly Ayotte Speaks to New England ESOP Association Members

June 17, 2013 (Washington, DC) – Speaking to a gathering of ESOP Association members, Senator Kelly Ayotte (R-NH) once more renewed her promise to protect ESOPs (employee stock ownership plans) and employee ownership in America. The Senator was also presented with the 2013 ESOP Advocate of the Year Award by The ESOP Association’s New England Chapter members. The Award was presented at the Chapter’s Super Regional Board of Directors/Trustee Conference held in Nashua, NH on June 14, 2013.

In February 2013, Senator Ayotte introduced pro-ESOP bill, S. 273, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act (ERISA) of 1974 to exclude appraisers of ESOPs. This bill is a response to the Department of Labor’s proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

“The ESOP Association is proud to recognize Senator Kelly Ayotte as the New England Chapter’s 2013 ESOP Advocate of the Year. Senator Ayotte is a strong advocate for the ESOP cause, and the Association, along with New England Chapter members, is grateful for the commitment Senator Ayotte has shown in supporting employee-owned companies,” said ESOP Association President, J. Michael Keeling.

June 12, 2013

The Financial Services Accounting Board (FASB) voted to indefinitely defer the Accounting Standards Update (ASU) 2011-04 which would require companies to disclose the significant assumptions and methodologies used in the valuation of company securities that are not publicly traded. The Update had been written in such a way that privately-held companies were likely to be required to provide a footnote in their ESOP audit reports filed with the 5500 form that would have provide information to outside parties that many ESOP companies considered detrimental to the interests of their businesses.

In February 2013, The ESOP Association joined the Employee-Owned S Corporations of America (ESCA) and the National Center for Employee Ownership (NCEO) in sending a letter to FASB regarding the proposed Update. The link to the letter can be found here.

May 31, 2013

May 29, 2013

Earlier this year, ESOP Association President, J. Michael Keeling, sent a letter to Association members located in Ohio’s 12th District, which is represented by Congressman Pat Tiberi (R-OH), alerting members of the Congressman’s role in the overhaul of tax laws. The Congressman is leading a tax force group that will look at pensions and retirement. Hopkins Printing, located in Columbus, OH responded to the call in a very unique way.

Hopkins Printing employee owner, Michelle Waterhouse, wrote a letter to the Congressman reminding him of a visit he made to the company in 2010 and talked about how important the ESOP is to the company, the company’s customers, and most importantly, the company’s employee owners. At left is the photo of Congressman Tiberi’s visit that adorns the history wall at Hopkins Printing.

Why mention this? Because not only is it important to meet with your members of Congress to talk about how an ESOP has helped your company but the relationship your company’s employee owners build with a member of Congress is also important in helping to move the ESOP cause forward, especially now with tax reform underway.

Thanks to Michelle Waterhouse for sharing the photo and information with The ESOP Association.

If you would like additional information on the advocacy efforts and how you can become involved, click here. Summer editions of the Advocacy Kit and the Congressional Company Visit Kit are now available. Information can also be found under the ESOP Bulletin section.

May 17, 2013 (Washington, DC) – Congressmen Brett S. Guthrie (R-KY), David Loebsack (D-IA), and Congresswoman Lynn Jenkins (R-KS) introduced H.R. 2041, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to make clear appraisers of employee stock ownership plans (ESOPs) are not ERISA fiduciaries.

H.R. 2041 is the companion bill to S. 273 introduced by Senator Kelly Ayotte in February 2013. This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

While the original proposal was withdrawn, if any regulation was finalized to make appraisers ERISA fiduciaries, there would be extreme confusion over whether the appraiser or the trustee[s], and other current fiduciaries, make the decisions about acquisition of shares on behalf of average pay employees. More troubling, it would leave private ESOP companies open to lawsuits by aggressive class action trial lawyers. Leaders at the DOL say a new proposal will be issued sometime in 2013. It is expected DOL will not alter the proposed regulation’s mandate that all appraisers of ESOP stock be ERISA fiduciaries.

“The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of sustaining jobs as evidenced during the Great Recession. As we’ve said before, research proves that ESOPs, and companies with other forms of employee stock ownership, provide more sustainable employment. According to the 2010 General Social Survey, employee stock owned companies laid off employees at a rate of 2.6% in 2010, whereas the rate for conventionally-owned companies was 12.1%. Bottom-line, ESOP companies’ employees, in the aggregate, save Uncle Sam $7 for every dollar Uncle Sam spent promoting employee ownership,” stated ESOP Association President, J. Michael Keeling.

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

May 7, 2013

If you’re attending the Association’s 36th Annual Conference this week in Washington, DC, and will be meeting with your member of Congress, below are a few highlights on recent pro-ESOP legislation and information concerning a negative ESOP proposal in the President’s 2014 FY Budget.

You can find additional information in the Lobbying Kit which will be available at the Conference and in the 2013 Spring Advocacy Kit which is available on the website.

On February 13, 2013, Senator Kelly Ayotte (R-NH) introduced S. 273, a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans (ESOPs).

Co-Sponsors

Senator Roy Blunt, R-MO

Senator Amy Klobuchar, D-MN

Senator Mary L. Landrieu, D-LA

Senator Mitch McConnell, R-KY

This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

While the original proposal was withdrawn, if any regulation was finalized to make appraisers ERISA fiduciaries there would be extreme confusion over whether the appraiser or the trustee[s], and other current fiduciaries, make the decisions about acquisition of shares on behalf of average pay employees. More troubling, it would leave private ESOP companies open to lawsuits by aggressive class action trial lawyers. Leaders at the DOL say a new proposal will be issued in July 2013. It is expected DOL will not alter the proposed regulation’s mandate that all appraisers of ESOP stock be ERISA fiduciaries.

The ESOP Association expresses strong support for S.742, the Promotion and Expansion of Private Employee Ownership Act of 2013, introduced April 17, 2013 by Senator Ben Cardin (D-MD) and co-sponsored by a bi-partisan group of Senators. Co-sponsors include:

Original Co-Sponsors

Senator Ben Cardin (D-MD)

Senator Roy Blunt (R-MO)

Senator Amy Klobuchar (D-MN)

Senator Mary Landrieu (D-LA)

Senator Pat Roberts (R-KS)

Senator Debbie Stabenow (D-MI)

Senator John Thune (R-SD)

Joined as Co-Sponsors as of April 23

Senator Mike Crapo (R-ID)

Senator Sherrod Brown (D- OH)

S. 742 would amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of employee stock ownership plans (ESOPs) in S corporations and expand opportunities for existing S ESOP corporations.

The ESOP Association Disappointed with ESOP Proposal in President Obama’s Budget

Today, The ESOP Association expressed disappointment over a provision in the President’s Fiscal Year 2014 budget that pertains to employee stock ownership plans (ESOPs). Included in the budget document is a provision to eliminate Internal Revenue Code section 404(k). This incentive for ESOP creation and operation permits a C corporation to deduct the value of dividends paid on ESOP stock passed through to employees in cash, deductions used to pay the ESOP acquisition loan, or when the employee reinvests in more company stock in his/her ESOP account balance.

“This is a major proposal to reduce an incentive to create and operate an ESOP; we are disappointed it has been included in the President’s budget,” said ESOP Association President, J. Michael Keeling. “It is counter-intuitive to eliminate an incentive for a policy that resulted in fewer layoffs during the Great Recession. According to the 2010 General Social Survey, employee stock owned companies laid off employees at a rate of 2.6% in 2010, whereas the rate for conventionally-owned companies was 12.1%. It’s baffling to hear the Administration preach about creating jobs and then take away a proven policy that sustains jobs.”

May 6, 2013

If you’re joining us for the 2013 Annual Conference in Washington, DC on May 9 – 10, and are planning to meet with your member of Congress while in town, download a copy of the Lobbying Kit. It’s a shortened version of the general Advocacy Kit and contains all the information you need for a successful meeting.

April 26, 2013

With tax reform and the President’s budget provision in circulation (more information here), we wanted to share several options for staying on top of Association news.

Website – all information is posted to The ESOP Association’s website. Check the ESOP Bulletin under Advocacy and the News section on the homepage for the latest information.

ESOP Association Blog – government affairs information is posted here as it happens. There is an email subscription feature on the homepage. You’ll be notified by email when new information is posted. The RSS feed is another option for updates.

Facebook and LinkedIn – information and links to information are posted to the Association’s Facebook page and LinkedIn group for members to stay involved.

YouTube Channel – when important information is announced, additional commentary is posted to the Association’s YouTube Channel.

Email – emails to the membership will continue on important issues.

As information breaks, the Association will share information in several forms and in several places to reach members.

Got questions? Let us know.

April 25, 2013

Part 2 of the Congressional visits story. Remember, if you’d like information on how to schedule a Congressional visit at your company, download a copy of The ESOP Association’s Congressional Company Visit Kit.

On February 22, 2013, Douglas Machine had the honor of hosting Senator Amy Klobuchar for the purpose of ESOP awareness and education.

After a short meet and greet, CFO, Tom Wosepka, gave a presentation on Douglas’s history, products, and ESOP. The presentation led into a discussion on some of the regulatory hurdles Douglas and other ESOPs have been encountering in recent years. The Senator acknowledged these challenges and understood how they impact Douglas’s business. There was also discussion of S. 273, which would keep the DOL from redefining the term fiduciary as it relates to ESOPs. Senator Klobuchar’s staff indicated that they would work with her to consider co-sponsorship of the bill and the Senator co-sponsored the bill on March 6, 2013.

The Senator took a tour of a portion of the Douglas manufacturing facility and was able to discuss what it means to work at an ESOP company with employee owners, Julie Rubner and Andrew Freyholtz. Along the way she had brief discussions with numerous employee owners and saw some of Douglas’s equipment being tested prior to shipment. During this time the MN/Dakotas Chapter’s Government Relations Committee Co-Chair, Steve Storkan, gave the Senator’s aides a more in-depth understanding of the legislative activity surrounding ESOPs.

As the tour came to a close, the Senator was provided with detailed information on ESOPs and exchanged contact information for future dialogue with high hopes that the Senator will use her influence on Capitol Hill to advocate on behalf of ESOPs.

Thanks to MN/Dakotas Chapter Administrator Sue Crockett for sharing information with the Association.

Congressman Raul Labrador Visits Pacific Steel & Recycling

The following was forwarded to the Association by Dana Friede, Director of Marketing for Pacific Steel & Recycling in Great Falls, MT: “I wanted to let you know that Pacific Steel & Recycling hosted Congressman Raul Labrador as a visitor to its new steel sales and steel processing facility in Nampa, Idaho yesterday. Congressman Labrador toured our office and steel warehouse, observing our employee owners at work and asking them questions. He was interested in the concept of an ESOP and was familiar with the way it works. From what I’ve been told, he seemed very pro-business.”

April 24, 2013

The best way to show your member of Congress what your ESOP means to employee owners and the company is to have your member of Congress visit your company. Several ESOP Association members have done just that and we’re going to be sharing their stories over the next two days.

If you’d like information on how to schedule a Congressional visit at your company, download a copy of The ESOP Association’s Congressional Company Visit Kit.

If your member of Congress met with employee owners at your company, or if a meeting was scheduled with a member of Congress in the Washington or District office, please share it with us at media AT esopassociation.org.

During her tour with WASP employees, President and CEO, Dane Anderson, stressed to the Senator that statistics show that a large percentage of all workers and Americans nearing retirement age have less than $30,000 saved for retirement. An employee at WASP, with 15 years of participation, alreadyhas approximately $300,000 in their ESOP account.

Senator Klobuchar was asked to reintroduce the Promotion and Expansion of Private Employee Ownership Act, which she co-sponsored in the 112th Congress. She was also urged to consider support for Senator Ayotte’s bill (S. 273) to block the DOL’s ill-advised efforts to treat ESOP appraisers as fiduciaries and, most importantly, to protect ESOPs from becoming a victim of tax reform. As this posting, Senator Klobuchar has co-sponsored S. 273.

Senator Klobuchar with employee owners of WASP Inc.

Thanks to MN/Dakotas Chapter Administrator Sue Crockett for sharing photos and information with the Association.

Congressman Danny K. Davis Visits Burwood Group, Inc.

Rachel Gibson, Director of Finance and Operations at Burwood Group, Inc., located in Chicago, IL, reported that Congressman Danny Davis (D-IL) visited the company on February 21, 2013. Ms. Gibson said of the visit: “The meeting was very positive. Congressman Davis provided an overview of his roll leading one of the most diverse districts in the U.S., along with comments on the general concerns that our nation is facing related to the Sequester. Congressman Davis is a strong supporter of ESOPs and has been for many years. We were honored to share our passion for ESOPs with him and are encouraged to have a strong supporter of our cause on the Ways and Means Committee.”

Thanks to Illinois Chapter Administrator Donna Walseth for sharing photos with the Association.

Iowa Chapter Members Step Up in Des Moines, IA for ESOP Day at the State Capitol

A group of 10 Iowa ESOP Association members participated in an ESOP Day at the state capitol in Des Moines on February 27, 2013. The purpose of the visit was to share their support of the Iowa Partners for Economic Progress proposed budget that includes a request for $1 million to establish a program to encourage the formation of ESOPs in Iowa.

Chapter members met with five House members and five Senators presenting a background statement and ownership census flyer (link below photo) asking for their support. Members felt bipartisan support of the proposal was favorable. Another day at the Capitol may be scheduled prior to a vote on the legislation.

April 22, 2013

On April 15, 2013, The ESOP Association shared information with members about President Obama’s FY2014 Budget containing a condemnation of employee ownership through an ESOP in any company with over $5 million in revenue. Such a view of ESOPs is a reversal of Executive Branch support of ESOPs, both Democratic and Republican, since 1975!

(This blanket condemnation of ESOPs in companies with over $5 million in annual revenues is set forth as a justification in the FY2014 Administration budget proposal’s Greenbook for the repeal of a 1984 law permitting C corporations to take a tax deduction for the value of dividends paid on ESOP stock under certain terms and conditions. More information here.)

Senator Bernard Sanders (I-VT), a long-time ESOP advocate and a member of the Senate Budget Committee, recently questioned the Treasury Secretary, Jacob J. Lew, regarding the Administration’s view of ESOPs. He sent the question in writing on April 17, 2013 to Treasury Secretary Lew and has gone on the record asking the Administration to justify its position that only companies with 10 to 20 employees can benefit from employee ownership. This position disagrees with over 35 years of research that show ESOP companies, no matter what size, in the vast majority of instances, are more productive, more profitable, and provide locally-controlled, sustainable jobs. You can read Senator Sanders’s question for the record here – Sanders ESOP Question.

“The ESOP community should find the Administration’s ESOP position shocking,” said ESOP Association President, J. Michael Keeling. “Not only does it reverse almost 40 years of support for ESOPs, but also, it’s counter-intuitive to eliminate an incentive for a policy that resulted in fewer layoffs during the Great Recession. It’s baffling to hear the Administration preach about creating jobs and then off-handedly dismiss a proven policy that sustains jobs.”

S. 742 would amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of employee stock ownership plans (ESOPs) in S corporations and expand opportunities for existing S ESOP corporations.

“Needless to say, it is extremely pleasing to see these Senate leaders, representing bi-partisanship, stand up for employee stock ownership through ESOPs, in contrast to the Administration’s position that ESOPs do not benefit employees, their companies, and our nation if a company has more than $5 million in revenue per year,” said ESOP Association President, J. Michael Keeling. “Research proves that ESOPs, and companies with other forms of employee stock ownership, provide more sustainable employment. For example, according to the 2010 General Social Survey, employee stock owned companies laid off employees at a rate of 2.6% in 2010, whereas the rate for conventionally-owned companies was 12.1%. We need policies to encourage employee stock ownership, and new policies, such as S. 742, to increase ownership among more working Americans.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

April 12, 2013

Drs. Joseph Blasi (Rutgers University School of Management and Labor Relations), Richard Freeman (Harvard University Department of Economics), and Douglas Kruse (Rutgers University School of Management and Labor Relations) submitted comments to the House Ways and Means Committee’s Tax Reform Working Group on Pensions/Retirement. You can view the comments here. The submissions are listed alphabetically.

The comments are an excerpt of the researchers’ new book titled, The Citizen’s Share, which will be released by Yale University Press in August 2013. The new book focuses on policies and shared capitalism in the United States and Europe and the impact globally.

The ESOP Association submitted comments the House Ways and Means Committee’s Tax Reform Working Group on Pensions/Retirement on March 21, 2013. You can find additional information here.

April 10, 2013

The ESOP Association sent out the following press release today. We’re sharing with our blog readers.

For Immediate Release: April 10, 2013

The ESOP Association Disappointed with ESOP Proposal in President Obama’s Budget

April 10, 2013 (Washington, DC) – Today, The ESOP Association expressed disappointment over a provision in the President’s Fiscal Year 2014 budget that pertains to employee stock ownership plans (ESOPs). Included in the budget document is a provision to eliminate Internal Revenue Code section 404(k). This incentive for ESOP creation and operation permits a C corporation to deduct the value of dividends paid on ESOP stock passed through to employees in cash, deductions used to pay the ESOP acquisition loan, or when the employee reinvests in more company stock in his/her ESOP account balance.

“This is a major proposal to reduce an incentive to create and operate an ESOP; we are disappointed it has been included in the President’s budget,” said ESOP Association President, J. Michael Keeling. “It is counter-intuitive to eliminate an incentive for a policy that resulted in fewer layoffs during the Great Recession. According to the 2010 General Social Survey, employee stock owned companies laid off employees at a rate of 2.6% in 2010, whereas the rate for conventionally-owned companies was 12.1%. It’s baffling to hear the Administration preach about creating jobs and then take away a proven policy that sustains jobs.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

March 25, 2013

On March 21, 2013, The ESOP Association submitted comments to the House Ways and Means Committee on Tax Reform. The comments are available on The ESOP Association’s website.

In summary:

The House Ways and Means Committee has a long history of supporting laws that encourage the creation and operation of ESOPs because in the vast majority of instances, ESOP companies are more productive, more profitable, with sustainable jobs for their employees, that are locally controlled, while providing retirement benefits that are greater than most U.S. conventionally- owned companies.

ESOPs are at the same time, putting an average of $8 in revenues into the Federal Treasury for every $1 that is “foregone” by the Federal government because of the laws promoting employee stock ownership through the ESOP model.

As the process of Tax Reform progresses, the Association will update members on the blog and website. Check this page for the most recent government affairs information.

March 7, 2013

Take notice, the tax reform process is underway! ESOP Association President, J. Michael Keeling, discusses tax reform in the 113th Congress and what it will mean for ESOP Association members and the ESOP community.

March 1, 2013

We thought we’d take a look at the list of ESOP advocates and break it down by state. As you know, you can find the list of ESOP advocates on the Association’s website here. The list is updated frequently. Right now, there are 148 advocates on the list.

So, the important question, what state boasts the most ESOP Advocates?

The answer: Texas with 10 ESOP advocates in residence, all members of the House of Representatives.

Here’s the breakdown by state:

Alabama = 1 (House)

Congresswoman Jo Bonner (R-AL)

Arizona = 3 (2 House, 1 Senate)

Congressman Raul Grijalva (D-AZ)

Congressman Ed Pastor (D-AZ)

Senator John McCain (R-AZ)

California = 7 (all House)

Congressman Ken Calvert (R-CA)

Congressman Michael Honda (D-CA)

Congresswoman Barbara Lee (D-CA)

Congressman Howard McKeon (R-CA)

Congressman Dana Rohrabacher (R-CA)

Congressman Edward Royce (R-CA)

Congressman Mike Thompson (D-CA)

Colorado = 1 (House)

Congressman Jared Polis (D-CO)

Connecticut = 3 (2 House, 1 Senate)

Congressman Joe Courtney (D-CT)

Congressman John Larson (D-CT)

Senator Richard Blumenthal (D-CT)

Florida = 4 (all House)

Congressman Vern Buchanan (R-FL)

Congressman Jeff Miller (R-FL)

Congressman Bill Posey (R-FL)

Congresswoman Ileana Ros-Lehtinen (R-FL)

Georgia = 3 (1 House, 2 Senate)

Congressman John Lewis (D-GA)

Senator Saxby Chambliss (R-GA)

Senator Johnny Isakson (R-GA)

Guam = 1 (House)

Congresswoman Madeleine Bordallo (D-GU)

Idaho = 1 (Senate)

Senator Michael Crapo (R-ID)

Illinois = 7 (all House)

Congressman Danny Davis (D-IL)

Congressman Randy Hultgren (R-IL)

Congressman Adam Kinzinger (R-IL)

Congressman Mike Quigley (D-IL)

Congressman Peter Roskam (R-IL)

Congresswoman Janice Schakowsky (D-IL)

Congressman Aaron Schock (R-IL)

Indiana = 3 (all House)

Congressman Larry Bucshon (R-IN)

Congressman Andre Carson (D-IN)

Congressman Todd Rokita (R-IN)

Iowa = 5 (4 House, 1 Senate)

Congressman Bruce Braley (D-IA)

Congressman Steve King (R-IA)

Congressman Tom Latham (R-IA)

Congressman David Loebsack (D-IA)

Senator Charles Grassley (R-IA)

Kansas = 4 (2 House, 2 Senate)

Congresswoman Lynn Jenkins (R-KS)

Congressman Kevin Yoder (R-KS)

Senator Jerry Moran (R-KS)

Senator Pat Roberts (R-KS)

Kentucky = 2 (1 House, 1 Senate)

Congressman Brett Guthrie (R-KY)

Senator Mitch McConnell (R-KY)

Louisiana = 4 (3 House, 1 Senate)

Congressman Rodney Alexander (R-LA)

Congressman Charles Boustany, Jr. (R-LA)

Congressman William Cassidy (R-LA)

Senator Mary Landrieu (D-LA)

Maine = 3 (2 House, 1 Senate)

Congressman Michael Michaud (D-ME)

Congresswoman Chellie Pingree (D-ME)

Senator Susan M. Collins (R-ME)

Maryland = 1 (Senate)

Senator Ben Cardin (D-MD)

Massachusetts = 2 (all House)

Congressman James McGovern (D-MA)

Congressman Richard Neal (D-MA)

Michigan = 2 (all House)

Congressman Dave Camp (R-MI)

Congressman Sander Levin (D-MI)

Minnesota = 5 (4 House, 1 Senate)

Congresswoman Betty McCollum (D-MN)

Congressman Erik Paulsen (R-MN)
Congressman Collin Peterson (D-MN)

Congressman Timothy Walz (D -MN)

Senator Amy Klobuchar (D-MN)

Mississippi = 1 (House)

Congressman Alan Nunnelee (R-MS)

Missouri = 6 (5 House, 1 Senate)

Congressman Emanuel Cleaver (D-MO)

Congressman Sam Graves (R-MO)

Congresswoman Vicky Hartzler (R-MO)

Congressman Billy Long (R-MO)

Congressman Blaine Luetkemeyer (R-MO)

Senator Roy Blunt (R-MO)

Montana = 1 (Senate)

Senator Max Baucus (D-MT)

Nebraska = 1 (House)

Congressman Lee Terry (R-NE)

Nevada = 1 (House)

Congressman Joseph Heck (R-NV)

New Hampshire = 2 (all Senate)

Senator Kelly Ayotte (R-NH)

Senator Jeanne Shaheen (D-NH)

New Jersey = 5 (4 House, 1 Senate)

Congressman Robert Andrews (D-NJ)

Congressman Rodney P. Frelinghuysen (R-NJ)

Congressman Rush Holt (D-NJ)

Congressman Bill Pascrell, Jr. (D-NJ)

Senator Robert Menendez (D-NJ)

New York = 5 (all House)

Congresswoman Carolyn Maloney (D-NY)

Congressman William Owens (D-NY)

Congressman Charles Rangel (D-NY)

Congressman Tom Reed (R-NY)

Congressman Jose Serrano (D-NY)

North Carolina = 4 (3 House, 1 Senate)

Congressman Howard Coble (R-NC)

Congressman Walter Jones, Jr. (R-NC)

Congressman Melvin Watt (D-NC)

Senator Richard Burr (R-NC)

Ohio = 8 (6 House, 2 Senate)

Congressman John Boehner (R-OH)

Congressman Steve Chabot (R-OH)

Congresswoman Marcy Kaptur (D-OH)

Congressman Steve Stivers (R-OH)

Congressman Patrick Tiberi (R-OH)

Congressman Michael Turner (R-OH)

Senator Sherrod Brown (D-OH)

Senator Rob Portman (R-OH)

Oklahoma = 1 (House)

Congressman Frank Lucas (R-OK)

Oregon = 4 (3 House, 1 Senate)

Congressman Earl Blumenauer (D-OR)

Congresswoman Suzanne Bonamici (D-OR)

Congressman Greg Walden (R-OR)

Senator Ron Wyden (D-OR)

Pennsylvania = 7 (all House)

Congressman Michael G. Fitzpatrick (R-PA)

Congressman Jim Gerlach (R-PA)

Congressman Tom Marino (R-PA)

Congressman Tim Murphy (R-PA)

Congressman Joseph Pitts (R-PA)

Congresswoman Allyson Schwartz (D-PA)

Congressman Glenn Thompson (R-PA)

Rhode Island = 1 (Senate)

Senator Sheldon Whitehouse (D-RI)

South Carolina = 1 (House)

Congressman James Clyburn (D-SC)

South Dakota = 3 (1 House, 2 Senate)

Congresswoman Kristi Noem (R-SD)

Senator Tim Johnson (D-SD)

Senator John Thune (R-SD)

Tennessee = 1 (House)

Congressman John Duncan, Jr. (R-TN)

Texas = 10 (all House)

Congressman Kevin Brady (R-TX)

Congressman John Culberson (R-TX)

Congressman Gene Green (D-TX)

Congresswoman Eddie Bernice Johnson (D-TX)

Congressman Sam Johnson (R-TX)

Congressman Kenny Marchant (R-TX)

Congressman Pete Olson (R-TX)

Congressman Ted Poe (R-TX)

Congressman Pete Sessions (R-TX)

Congressman William Thornberry (R-TX)

U.S. Virgin Islands = 1 (House)

Congresswoman Donna M. Christensen (D-VI)

Utah = 2 (1 House, 1 Senate)

Congressman Rob Bishop (R-UT)

Senator Orrin Hatch (R-UT)

Vermont = 3 (1 House, 2 Senate)

Congressman Peter Welch (D-VT)

Senator Patrick Leahy (D-VT)

Senator Bernard Sanders (I-VT)

Virginia = 5 (all House)

Congressman Eric Cantor (R-VA)

Congressman Gerald E. Connolly (D-VA)

Congressman Randy Forbes (R-VA)

Congressman Bob Goodlatte (R-VA)

Congressman James Moran (D-VA)

Washington = 3 (2 House, 1 Senate)

Congresswoman Cathy McMorris Rodgers (R-WA)

Congressman David Reichert (R-WA)

Senator Maria Cantwell (D-WA)

West Virginia = 3 (2 House, 1 Senate)

Congressman David McKinley (R-WV)

Congressman Nick Rahall (D-WV)

Senator John D. Rockefeller (D-WV)

Wisconsin = 7 (6 House, 1 Senate)

Congressman Ron Kind (D-WI)

Congresswoman Gwen Moore (D-WI)

Congressman Thomas Petri (R-WI)

Congressman Reid Ribble (R-WI)

Congressman Paul Ryan (R-WI)

Congressman James Sensenbrenner (R-WI)

Senator Tammy Baldwin (D-WI)

If you’re wondering, the states without ESOP advocates are:

Alaska

Arkansas

Delaware

Hawaii

New Mexico

North Dakota

Wyoming

If you’ll be attending the 36th Annual Conference in Washington, DC this year, and would like to visit your member of Congress, we’ll have information in the soon to be updated Advocacy Kit which will be available on the Association’s website for download. Additional materials will be available at the Conference as well.

February 19, 2013

The ESOP Association joined the Employee-Owned S Corporations of America (ESCA) and the National Center for Employee Ownership (NCEO) in sending a letter to the Financial Accounting Standards Board (FASB) urging the carve-out of private companies from new rules that may require private companies, including ESOPs, to disclose information in their ESOP audit reports filed with the 5500 form about the significant assumptions and methodologies used in the valuation of the company’s stock.

The Accounting Standards Update (ASU) 2011-04 would require companies to disclose the significant assumptions and methodologies used in the valuation of company securities that are not publicly traded and has been written in a way such that privately-held companies are likely to be required to provide a footnote in their ESOP audit reports filed with the 5500 form that would provide information to outside parties that many of our members may consider detrimental to the interests of their businesses and our employee-owners.

ESOP Association Chair, Mark R. Lomele, Senior Vice President and Chief Financial Officer of Recology, located in San Francisco, CA signed the letter on behalf of the Association.

This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries.

While the original proposal was withdrawn, if any regulation was finalized to make appraisers ERISA fiduciaries there would be extreme confusion over whether the appraiser or the trustee[s], and other current fiduciaries, make the decisions about acquisition of shares on behalf of average pay employees. More troubling, it would leave private ESOP companies open to lawsuits by aggressive class action trial lawyers. Leaders at the DOL say a new proposal will be issued in July 2013. It is expected DOL will not alter the proposed regulation’s mandate that all appraisers of ESOP stock be ERISA fiduciaries.

“We’re very pleased to see Senator Ayotte not back down from protecting the best jobs policy, and the best deficit reduction policy, in Federal law,” said ESOP Association President, J. Michael Keeling. “The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of sustaining jobs as evidenced during the Great Recession. According to the General Social Survey of 2010, employer stock owned companies laid off employees at a rate of less than 3% whereas conventionally-owned companies laid off employees at a rate of more than 12% during the Great Recession. Bottom-line, ESOP companies’ employees, in the aggregate, were saving Uncle Sam $7 for every dollar Uncle Sam spent promoting employee ownership.”

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The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

February 6, 2013

As reported in the January 2013, ESOP Report newsletter, Assemblyman and Deputy Speaker of the New Jersey State Legislature, Upendra J. Chivukula (D), introduced a bill to encourage small businesses to establish ESOPs in December 2012. The bill would provide “…a gross income tax exclusion for certain capital gains from the sale of employer securities to a non-publicly traded business with fewer than 500 employees, whose headquarters or base of operations is in this State, to an employee stock ownership plan, a New Jersey S corporation owned by an employee stock ownership plan…” The bill is very similar to Iowa Governor Terry Brandstad’s ESOP initiative program which passed the Iowa State Legislature in 2012. When additional information about the New Jersey bill becomes available, it will be shared with Association members.

“It’s encouraging to see states considering bills to facilitate ESOP creation,” said ESOP Association President, J. Michael Keeling. “Indiana and Iowa with their respective states’ ESOP Initiatives, and now New Jersey, are leading the way on a state level and clearly see the value employee ownership brings to a company.”

January 17, 2013

The American Bar Association Section on Taxation sent a letter in December 2012 to Assistant Secretary of Labor, the Honorable Phyllis C. Borzi, discussing the DOL’s proposed regulation on the definition of a fiduciary. The letter makes a number of recommendations to the proposed regulation including information on valuation which would impact ESOP companies. The recommendation states: “We recommend that Final Regulations provide that a person who provides advice, or an appraisal or fairness opinion, concerning the value of securities or other property (“Valuation Information”), including with regard to employer securities, without providing any advice regarding whether to consummate a proposed transaction, even where rendered in connection with an acquisition or disposition of such property (e.g., by an ESOP) will not be a fiduciary.” (Information found on page 3 of letter.)

“While the DOL continues to pursue the proposed regulation on the definition of a fiduciary, comments such as this one from the American Bar Association filter in opposing the regulation and pointing out flaws in the DOL’s thinking. One has to wonder why the DOL is being so persistent in pushing this regulation,” said ESOP Association President, J. Michael Keeling.

Rex-Cut Products, Inc., located in Fall River, MA, met with Republican Congressional Candidate Sean Bielat of Massachusetts. The visit was also a feature in The Herald News in Fall River, MA. You can read the article here: RexCut Article.

Restek Corporation, located in Bellefonte, PA, will meet with Senator Toomey’s (R-PA) regional manager and the state director in late November 2012.

We know many ESOP companies are working to setup visits with members of Congress. Additional information about pro-ESOP bills and how to go about setting up a meeting can be found on The ESOP Association’s website here.

December 5, 2012

In October 2012, The ESOP Association, along with 22 other organizations concerned about the tax treatment of employer-provided retirement plans, signed a letter encouraging members of the Senate to co-sponsor a resolution showing support for the private retirement savings system. The letter states: “We are writing to ask you to co-sponsor a bi-partisan resolution that will be introduced by Senator Richard Blumenthal (D-CT) and Senator Johnny Isakson (R-GA) expressing the sense of the Congress that our current tax incentives for retirement savings provide important benefits to Americans to help plan for a financially secure retirement.”

If you would like a copy of the letter, please send an email to media@esopassociation.org with Senate Resolution Letter in the subject line.

Additionally, The ESOP Association will be joining a new retirement based group called the Coalition to Protect Retirement which is aimed at protecting retirement plans in the U.S. For more information on the Coalition to Protect Retirement, visit the website at How America Saves.

December 20, 2012

In November 2012, ESOP Association President, J. Michael Keeling, spoke to attendees at the Association’s Las Vegas Conference and Trade Show in Las Vegas, NV about the elections’ impact on ESOPs. As part of the presentation, he also touched on the subject of tax reform.

Today, we’d like to share with you some of his thoughts and several videos of prominent members of Congress talking about ESOPs and the need to enhance employee ownership in America.

November 26, 2012

At The ESOP Association’s 2012 Las Vegas Conference and Trade Show, Speaker of the House, Congressman John Boehner (R-OH), and Senator Bernard Sanders (I-VT) delivered, by video, messages to ESOP Association members during the Association’s Friday Luncheon.

Congressman Boehner and Senator Sanders, both long-time advocates for ESOP companies, spoke about the value of employee ownership.

“We thank Congressman John Boehner (R-OH) and Senator Bernard Sanders (I-VT) for taping these messages to members of The ESOP Association,” said ESOP Association J. Michael Keeling. “It’s important to remember how vital it is to share information with members of Congress that proves employee stock ownership is good for America.”

October 8, 2012

It might be a holiday but we’re still celebrating Employee Ownership Month. Today, we’re featuring a Congressional visit.

Congresswoman Virginia Foxx (R-NC) stopped by Salem Distributing Company located in Winston Salem, NC to meet with employee owners and tour the company’s remodeled facilities. The Mayor of Clemmons, NC, John Bost, was also part of the visit according to a Salem Distributing press release shared with The ESOP Association.

The Congresswoman met with company officials, several members of the company’s ESOP committee, and Mayor Bost for a roundtable discussion that included a brief overview of Salem Distributing and a report on how the company weathered the Great Recession. Salem Distributing, according the release, had the company’s most profitable year to date in 2011. It was also noted that company officials believed that “…the culture of the 100% employee-owned ESOP company attracts talent and motivates employees.” As Gale Marett, assistant controller for Salem Distributing and an active Chapter leader in the Association, stated, “The Company’s ESOP is more than just a benefit; it makes for a cohesive team, working for a common goal.”

During the meeting, it was noted by Salem Distributing that protecting the company’s 100% ESOP was a critical issue. Company representatives asked for Congresswoman Foxx’s support of the pro-ESOP bill H.R. 1244 to promote private company ESOPs. The Department of Labor’s (DOL) proposal to make ESOP appraisers ERISA fiduciaries was also discussed, with the Congresswoman agreeing that the DOL was not a supporter of ESOPs. She asked for more information on H.R. 1244 and said she would review it.

We thank Debbie Hooker of Salem Distributing Company for sharing the above information with The ESOP Association. If you would like to share company news with the Association, please send an email to media AT esopassociation.org.

For pictures, please use the link above to read the full post.

October 3, 2012

Park Manor, Ltd, an ESOP Association member located in Park Falls, WI received a proclamation from Wisconsin Governor, Scott Walker, declaring October 2012 as Employee Ownership Month throughout the state of Wisconsin. A copy of the proclamation is at left.

Thank you to Sharon Schultz of Park Manor for sharing a copy of the proclamation with The ESOP Association. If you have Employee Ownership Month announcements to share, please send an email to media@esopassociation.org. We may run your photos in the newsletter and here on The ESOP Association’s Blog.

September 20, 2012

Caltrol Inc., a 100% employee-owned process management and process automation company, and ESOP Association member located in Las Vegas, Nevada, hosted a visit from Congressman Joe Heck (R-NV) on July 2nd.

According to a press release shared with The ESOP Association, Caltrol is a great success story spanning over 76 years. Caltrol has continued to hire and increase their workforce, and continues to meet and exceed corporate goals.

After a tour of the facility, Congressman Heck met with the employee owners of Caltrol and answered questions on current legislative issues affecting ESOPs. When asked about his support for pro-ESOP bill, H.R. 1244, the “Promotion and Expansion of Private Employee Ownership Act,” he commented that he was not familiar enough with the act to comment at the time. Based on his visit and questions from employee owners, he said would make sure to follow H.R. 1244 through the subcommittees and make sure that he had it on his agenda.

Congressman Heck shared with Caltrol employee owners that he too had done business as a chapter S corporation and that he fully understood the company’s position and interest in protecting ownership rights. He further explained that the small to medium sized businesses have done a much better job of managing money. He would like to make sure the company continues to have the ability to reinvest earnings into expanding the business rather than having it eroded by additional taxes.

Caltrol was established, and became an employee-owned company, in 1985.

Thank you to Caltrol’s William Flader for sharing the information and photos with The ESOP Association.

For pictures, please use the link above to read the full post.

September 19, 2012

KAPCO, an ESOP company located in Brea, California and member of The ESOP Association, was pleased to host Congressman Ed Royce (R-CA) of the 40th District of California for a visit and tour of the company’s Brea facilities. Congressman Royce met with a group of employees and answered questions with regard to his stance on ESOPs, the financial situation in California, and the affect that the California Air Resources Board has had on businesses in the state. He strongly believes that ESOPs are the way of the future and will play an important role in seeing economic recovery throughout the nation. He is in support of H.R. 1244 and is willing to consider co-sponsoring the bill and making a strong push for it in Congress. In his words, “This issue needs to not only be supported, but to have a fire lit under it.”

The Congressman took time to tour three KAPCO Brea buildings and meet employees throughout the sites. George Ray of LeFiell Manufacturing and Stephanie Mercado and Nicol Vargas of Carl Warren & Company, also ESOP Association members, joined KAPCO employee owners for the visit.

Thank you to KAPCO’s Desiree Garcia for sharing this information and photos with the Association.

For pictures, please use the link above to read the full post.

September 18, 2012

The following article originally ran in the August 2012 issue of the ESOP Report, the newsletter of The ESOP Association, as the Washington Report column. Archived issues of the ESOP Report can be found in the members only section of the Association’s website.

With the quadrennial Presidential election season here, with the two candidates for President — President Barack Obama for the Democrats and Governor Mitt Romney for the Republicans — and with many very contested races in the U.S. Senate and the U.S. House of Representatives up for grabs, many in the ESOP community ask, “Who is most for ESOPs? Democrats or Republicans?”

On a case by case basis, that question cannot be answered. As noted in a YouTube posting on July 25, 2012, President Obama said once at a “town hall” like meeting in Virginia, where he gave a general explanation of what an ESOP is, that employee ownership should be encouraged. Governor Romney when visiting an ESOP company in New Hampshire said he thought it was good for employees to have “skin in the game.”

But neither said anything to indicate that he would openly and sincerely push for laws to encourage ESOP creation and operation, or even to protect current beneficial ESOP laws, as President Ronald Reagan did. Nor has either released a statement specifically endorsing ESOPs as Senator John McCain did when he was running for President in 2008. (Note, however, the long-time, strong support by Congressman Paul Ryan, the Republican Vice Presidential nominee here.)

So, in trying to decide if either party is more pro-ESOP than the other, so far in the 2012 Presidential campaign, best to leave the two candidates for President on the sidelines right now for purposes of this Washington Report. [Some have set forth that the actions of the current Administration’s Department of Labor that are not favorable to ESOPs should be determinative of whether President Obama is for positive ESOP laws. But, Democrats in the ESOP community rightfully note that ESOPs are not that big of a deal to have White House attention, given the challenges on the President’s desk daily. On the other hand, Republicans in the ESOP community stake out a claim that the “CEO” of the Federal government, the President, should be accountable for what a “division,” the Department of Labor, does or does not do.]

And, clearly there are men and women in Congress who are voting with the most “liberal” view of national policy who are demonstrating very strong pro-ESOP positions, such as Senator Sanders [I-VT], and others, such as Senator Ayotte [R-NH], thought to be representing the more conservative view of national policy that are just as pro-ESOP. And these case by case comparisons could go on and on.

One metric that is more macro yields more clear cut evidence that in the House of Representatives overall, up to this point, more Republican members of the House have taken pro-ESOP positions in the current Congress compared to Democrats in the House.

In the current Congress, there is one clear cut, pro-ESOP bill pending designed primarily to increase tax incentives for the creation of S ESOPs, and to rectify an SBA policy that is biased against all majority owned ESOPs. The bill, H.R. 1244, was introduced by a bi-partisan group of six members of the House Ways and Means Committee, where all tax laws originate — three Republicans and three Democrats — on March, 29, 2011.

Now, after many ESOP companies have asked their members of Congress to co-sponsor the legislation, H.R. 1244 has 86 members of the House saying that they are “for” this pro-ESOP legislation, or 19.7% of the total number of members of Congress. 63.9% of these 86, or 55, are Republican members of the House, while 36%, or 31, are Democratic members of the House. But these numbers have to be taken in the context of how many Republicans are there in the House compared to Democrats. 55.6% of the House members are Republicans, so the 63.9% is not that much more than the total percentage of Republican members in the House, whereas the Democrats make up 44.3% of the House, and the spread to 36% is a little more, but not much.

But on the House Committee, the House Ways and Means Committee, where the key laws impacting ESOPs originate, the spread between Republicans and Democrats is more telling. 48.6% of the members of the House Ways and Means Committee’s 37 members, or 18, are sponsoring H.R. 1244. [To really feel safe in the upcoming tax reform legislative effort, the ESOP community needs at least 28 or so men and women on the Committee to be “for” ESOPs.] But of the 18, 13 are Republicans, or 60% of that group, and 33%, or five of the 15 Democrats are sponsoring H.R. 1244.

On the Senate side, there is considerably more legislation pending that can be labeled pro-ESOP.

There is the pro-S ESOP tax law changes and SBA change for all ESOPs in S. 1512. Its overall support is similar to the House — 17 Senators are sponsoring, or 17% of the Senate. [The Senate has 100 members so math is real easy to calculate in the Senate.] The split is remarkably even, and nearly the same as the overall split in the Senate. Eight of the 17 are Democrats, seven are Republicans, and two are officially Independent. The primary sponsor, who dropped the bill, as they say in Congress, was Senator Ben Cardin (D-MD), a Democrat.

In the Senate, the key tax committee is the Committee on Finance, which really gave birth to modern ESOPs in the mid-70s when Democrat Russell Long of Louisiana was Chair. But in this Committee, support for S. 1512 is not as impressive as support for H.R. 1244 is on the House Ways and Means Committee. Only four Senators on this key Committee are “for” S. 1512, two Democrats and two Republicans.

Now the Senate has other, non-tax pro-ESOP bills, one primarily supported by Republican Senators trying to stop the DOL’s proposed regulation to make ESOP appraisers ERISA fiduciaries, and two bills primarily to have government programs to help finance ESOP transactions, and to have DOL actually promote employee ownership and participation. These last two bill were just introduced, its five sponsors are four Democrats, and the lead author is Senator Sanders, who caucuses with the Democrats in the Senate. The stop DOL bill, authored by Senate Ayotte, has six other sponsors, but only one is a Democrat.

Both Senator Ayotte and Senator Sanders are seeking more support for their bills — S. 1232 by Senator Ayotte, and S. 3419 and S. 3421 by Senator Sanders. [See June 2012 and July 2012 issues of the ESOP Report for details.]

Bottom line: The ESOP community can feel pretty good that support for ESOPs still crosses party lines in nearly all these metrics, except perhaps the metric of support for the current pro-ESOP tax bill H.R. 1244 among members of the key tax committee, the House Ways and Means Committee.

And, despite what cable TV says, having broad based support pays off for an interest group in the long run, as the wheel of fortune for the political parties is always turning, and what does go around, comes around.

September 14, 2012

ESOP Association President, J. Michael Keeling, discusses Presidential opinions on ESOPs over the years. The information in this video is based on a September 2012 Washington Report column that will run in The ESOP Association’s newsletter, the ESOP Report.

The video of President Ronald Reagan that Mr. Keeling refers to in the video can be found here.

September 4, 2012

S. 1232, introduced by Senator Kelly Ayotte (R-NH) in June 2011, is a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans. This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries. If the proposed regulation were to be finalized as is, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies open to lawsuits. More information can be found here.

On August, 9, 2012, the President and CEO of AICPA, Barry C. Melancan, CPA, CGMA, wrote to Senators Tom Harkin and Mike Enzi to ask for their support of S. 1232. Senator Harkin is Chair of the Senate Committee on Health, Education, Labor and Pensions and Senator Enzi a Ranking Member. The letter states:

“…the DOL’s 2010 proposed definition of fiduciary, which would contradict more than 35 years of accepted practice, will not solve the agency’s quality concerns regarding a limited number of ESOP appraisals. Rather, it takes a one-size-fits-all approach to correct an admittedly small potential problem which would benefit from a far more specific solution.”

“We have said it over and over again, but the DOL does not want to listen. The officials at DOL need to wake up to the fact that private company ESOPs have tremendous positive records of creating jobs that are locally controlled in high performing companies. ESOPs are good for employees, companies, and our communities,” said ESOP Association President J. Michael Keeling. “While a new version of the regulation has not been proposed yet in 2012, the DOL continues to state that ESOPs will be closely examined and incorrect valuations are of particular concern. DOL officials refuse to listen and we have heard they have no intent to alter their views toward ESOPs. We thank the AICPA for their support of S. 1232 and ask members of The ESOP Association to reach out to their Senators and ask for their support of this bill.”

August 28, 2012

The ESOP Association was pleased to receive the following language endorsing employee stock ownership plans which is part of the 2012 Republican Party platform.

“We are pleased by this endorsement of employee stock ownership plans by the Republican party platform,” said ESOP Association President J. Michael Keeling. “The ESOP community also believes that employee empowerment and workforce nimbleness are part and parcel of why ESOP companies are, in the vast majority of instances, more productive, more profitable, and more sustainable providing locally-controlled jobs.”

Republicans believe that the employer-employee relationship of the future will be built upon employee empowerment and workplace flexibility, which is why Republicans support employee ownership. We believe employee stock ownership plans create capitalists and expand the ownership of private property and are therefore the essence of a high-performing free enterprise economy, which creates opportunity for those who work and honors those values that have made our nation so strong. Today’s workforce is independent, wants flexibility in working conditions, needs family-friendly options, and is most productive when allowed to innovate and rethink the status quo. The federal government should set an example in making those adaptations, especially in promoting portability in pension plans and health insurance.

August 16, 2012

The ESOP Association was pleased to receive this statement from the current Republican candidate for U.S. Senate in the state of Virginia, former Virginia Governor, George Allen, declaring his support for ESOPs. Governor Allen is the second U.S. Senatorial candidate that has declared his support for ESOPs in the past months following Indiana State Treasurer Richard Mourdock who is running for a U.S. Senate seat in Indiana.

We welcome Governor Allen’s commitment to the ESOP community. The statement follows:

“I have long been a strong supporter of ESOPs and co-sponsored two major bipartisan ESOP bills when I served in the U.S. Senate — the ESOP Promotion and Improvement Acts of 2004 and 2005. In my view, employee ownership and incentives are truly positive principles. It makes a great deal of sense that having employees actually own part of the company is powerful — motivation because they share in its success.

“Research continues to confirm the strength of ESOP companies, which have been a bright spot in the current weak economy. Research also confirms what I have observed from the time I was Governor of Virginia and what Ronald Reagan discovered in the 1970s, that the increased productivity of employee-owners helps profitable ESOP companies generate new jobs and build a healthy economy.

“From Tidewater to Southside and Southwest Virginia to the Shenandoah Valley and Northern Virginia, thousands of employee-owners of ESOP companies have benefited for many years from a ‘piece of the action.’ If I have the honor and privilege of again serving Virginia in the U.S. Senate, I will work to see that ESOPs play an even more significant role in U.S. economic policy and I will continue to support legislation that promotes and improves ESOPs.”

August 14, 2012

As some might not know, Congressman Paul Ryan, the Republican Vice Presidential Candidate, is a long time supporter of ESOPs. In this video, ESOP Association President, J. Michael Keeling, discusses with Association members Congressman Ryan’s history of support for ESOPs and what this development means for the ESOP community.

The ESOP Report article that Mr. Keeling refers to in the video can be found here.

July 31, 2012

A few years back, while searching The ESOP Association’s office library, we came across a nondescript blue notebook. A closer look found it contained the letters of Judson T. Bradford of the W.J. Bradford Paper Company located in Holland, MI. Mr. Bradford put the notebook together in the summer of 1987 chronicling his work to expand employee ownership in the state of Michigan, and in the U.S., starting in the early 60s and ending in 1975.

The Association wrote about the notebook in the January 2003 issue of the ESOP Report calling Mr. Bradford “…an unsung hero of the employee ownership movement.” Mr. Bradford’s 30 year campaign led to the introduction of what is probably the first pro employee ownership bill in Congress and helped to get employee ownership on the 1968 Republican Party platform.

The notebook is full of letters to several notable individuals including President Gerald Ford, Michigan Governor George Romney, father of the presumptive Republican Nominee for President, Mitt Romney, Jacob Javits and Guy Vander Jagt, prominent members of Congress at the time. It also contains information on speeches and the first bill introduced in the U.S. Congress that supported the concept of broadened employee ownership.

Mr. Bradford wrote a short introduction dated July 31, 1987 stating the following:

“I believe in the employee ownership stock movement. I believe that it is just in the beginning of ascendency at the present time. I believe it is going to be a very important economic, social and political force in the United States in the decades ahead. I believe that the employee stock ownership movement will also be of significant and growing importance in other countries of the world during the twenty-first century.”

We thought we would share with you a few of the pages Mr. Bradford has documented from his work.

(Click on the letters to enlarge for reading.)

According to the notebook:

“The first speech (that I know of) by a major political leader recommending that the concept of broadening employee stock ownership become part of the economic policy of his party before a major economic forum ( the speech of Senator Jacob Javits to the Economic Club of Detroit on March 21, 1966).

According to the notebook:

“The first policy statement (that I know of) by either major political party on the importance of the concept of broadening employee stock ownership to the economic health of the nation (Minority Views in the Report of the Joint Economic Committee of the Congress of the United States on the January 1967 Economic Report to the President.)

July 27, 2012

On July 26, 2012, Mabel Capolongo, Director of Enforcement for the Department of Labor’s (DOL) Employee Benefits Security Administration, blasted ESOPs because retiring shareholders were selling their stock to the ESOP!

Duh. This is precisely what Congress has endorsed and encouraged since 1984 — to have exiting shareholders of private companies transfer ownership of productive assets to average pay employees in a leveraged ESOP transaction. (Prime example: Internal Revenue Code Section 1042.)

For example, Congress, right or wrong, eliminated some incentives between 1986-1995 that encouraged large, publicly traded companies to establish ESOPs, but the Congress and six former Presidents have consistently affirmed special laws to encourage the creation and operation of ESOPs in private companies, including a major expansion of ESOPs by enacting law in 1998 encouraging ESOPs in S corporations.

Today, it is estimated that 95% of ESOPs created and operating were formed because an existing shareholder sold shares to an ESOP, when it became time for him/her to leave from the company, usually because of age.

It seems DOL wants the existing shareholder not to help create broadened ownership but to liquidate his/her business, or sell it to a private equity firm, or a competitor, resulting in lost jobs!

Meanwhile, there is 35 years worth of overwhelming evidence that private ESOP companies are more productive, more profitable, and more sustainable, providing locally-controlled jobs, compared to similar private companies not employee owned.

Evidence is also clear that during the Great Recession employee stock owned companies laid off employee at a rate of less than 3% while traditionally owned companies laid off employees at a rate greater than 12%.

“The ESOP community wants to work cooperatively with regulators at DOL but having a top DOL official express alarm that exiting shareholders of private companies are selling the stock to an ESOP makes cooperation hard. The expression of dismay by Ms. Capolongo about exiting shareholders selling stock to ESOPs to the benefit of the employees, the company, and American communities demonstrates the Department has no regard for laws encouraging ESOP creation and operation,” said ESOP Association President J. Michael Keeling.

If you would like to read additional comments about the DOL’s enforcement project, read the Jul 17, 2012 issue of the BNA’s Daily Tax Report. The article can be found on page G-6.

The WORK (Worker Ownership, Readiness and Knowledge) Act would promote employee ownership and employee participation in company decision making. According to the legislation, “…the bill would authorize the Department of Labor to provide education and outreach, training, grants, and technical support to local and state programs dedicated to the promotion of employee ownership and participation.”

The second bill, the U.S. Employee Ownership Bank Act, would provide loans and loan guarantees to employees to purchase a business through an ESOP or a worker owned cooperative. It would provide federal loans and loan guarantees for the expansion of employee ownership.

Senator Sanders held a press conference on the 23rd in Burlington, VT to announce the introduction of the legislation. You can read the Senator’s release and comments here.

“Senator Sanders and his colleagues are to be commended for their support of ESOPs and employee ownership in the U.S.,” said ESOP Association President J. Michael Keeling. “The ESOP community needs to ask Senators to join Senators Sanders, Leahy, Brown, and Blumenthal in their support of ESOPs. We are grateful to Senator Sanders for his consistent voice for over a decade in support of employee ownership.”

July 19, 2012

This email went out to ESOP Association members this morning. We want to share the information with blog readers.

July 19, 2012

Dear ESOP Association Member:

No member of Congress has stood up for ESOPs in its struggles with the Department of Labor more than Senator Kelly Ayotte of New Hampshire.

Our information is that the Department of Labor is not responding to the ESOP community’s protests about its proposal to mandate appraisers of ESOP stock be ESOP fiduciaries. In fact, it seems, by reports from certain Association members that the Department’s auditors are claiming appraisals using methodologies once “okay” are not right because they did not take into consideration the Great Recession of 2009 when doing appraisals before 2009!

In other words, the DOL audit position seems to be a tool to make a case that “many” ESOP appraisals are flim flam.

Senator Ayotte’s bill S. 1232 would stop the DOL proposal by making it clear, in law, that ESOP appraisers are not ERISA fiduciaries.

She understands, as the former Attorney General of the State of New Hampshire, that if DOL “wins”, ESOP companies will be harassed by lawsuits by those disagreeing with the value of ESOP shares, as she knows that there are attorneys looking to bring lawsuits against ESOP companies.

If you live in any state other than Maine, we respectfully request you contact your Senator with a letter respectfully requesting s/he join with Senator Ayotte as a co-sponsor of S. 1232.

Below is a suggested letter:

“Dear Senator ____________________________:

[I][We] are [Position] at [Name of Company].

[Name of Company] is owned [XX%] by an employee stock ownership plan, or ESOP. So, employees at [Name of Company] are owners as well.

We are concerned that a Department of Labor proposal will harm [Name of Company] by mandating that the individual valuing our stock every year, or when our ESOP acquires shares from retiring, disabled, the survivors of a deceased employee, or someone who has left employment, be an ERISA fiduciary.

Sounds innocent, but the Internal Revenue Code mandates the appraiser be independent of all parties involved with an ESOP, whereas the law on ERISA fiduciaries mandates a fiduciary only act on behalf of ESOP participants.

On top to this potential legal conflict, if the appraiser of our stock is an ERISA fiduciary, then our costs will go up, depress the share value of employees’ stock, and expose [Name of Company] to class action lawsuits any time anyone disagrees with the share value.

Senator Ayotte’s bill just plainly states “ESOP appraisers are not ERISA fiduciaries.”

She knows the track record of ESOPs, the best retirement savings and jobs program in America – for example, the General Social Survey 2010 evidenced that during the Great Recession of 2009, employee stock owned companies laid off employees at a rate less than 3%, while conventionally owned companies laid off companies at a rate of 12% plus. Data shows ESOP companies like [Name of Company] are more productive, more profitable, and more sustainable, providing jobs controlled in the USA.

July 17, 2012

As a wrap-up to yesterday’s post, we thought we’d share a few more photos from Congressional visits. We’ll post a few more later this week as well. If you had the chance to visit your member or hosted a Congressional company visit, send us an email at media@esopassociation.org and tell us about it.

Congressman Bobby Schilling (R-IL) with Scott Szafasz, Art Miller, and Danielle Montesano.Members of the New England Chapter meeting with Congressman William Keating (D-MA).Rex-Cut employee owners along with members from the New England Chapter on the steps of the Capitol.Congressman Robert Dold (R-IL) with Art Miller, Tony Lessmeister, Danielle Montesano, Scott Szafasz, and Phill Goodman.Congressman Adam Kinzinger (R-IL) with Art Miller, Tony Lessmeister, Danielle Montesano, and Scott Szafasz.Congressman Randy Hultgren (R-IL) with Scott Szafasz of Bimba Manufacturing, Dick Hill of Parksite, Congressman Hultgren, Danielle Montesano of First Bankers Trust Services, Art Miller of Holden Industries.Congressman John Larson (D-CT) meeting with Toni Boyle of Carris Reels, Enfield, CT.Wisconsin Chapter members at the U.S. Capitol. Shown here in front of a statue of Robert M. LaFollette, noted Congressional member having served in the U.S. House of Representatives and the US Senate; LaFollette was also the 20th Governor of Wisconsin.

July 16, 2012

During The ESOP Association’s 2012 Annual Conference, members made trips to Capitol Hill to meet with members of Congress and discuss ESOPs and employee ownership. We’re going to re-cap the stories shared with the Association here on the blog. If you had the chance to visit your member or hosted a Congressional company visit, send us an email at media@esopassociation.org and tell us about it.

John P. Jamar, CEO of CCI Systems in Iron Mountain, MI shared this with the Association: I am from Michigan’s Upper Peninsula. I met with Congressman Dan Benishek (R-MI). He toured our offices last month and understands ESOPs. I referred him to the pending pro-ESOP bill and made a special note of Congressman Sander Levin’s (D-MI) ESOP support over the years. I asked him to co-sponsor H.R. 1244.

I also met with aides for Senator Debbie Stabenow (D-MI). They were interested in how our ESOP works and in the history of our growing company. We also talked about Dodd/Frank as I am involved with a bank.

I stopped to meet with Senator Carl Levin (D-MI) as well. He is an intelligent man and is clear on the value of ESOP. I noted the pending bill (S. 1512) and asked that he support it. His aide was also there.

I was given enough time in all visits to tell the 27 year story of success at CCI Systems. I explained the value we have generated and distributed to retirees, deaths, and disabilities that have made live better for many. They also know that we continue to grow and add jobs and tax base to the state.

From left to right – Sayward Masselter, Congressman Scott DesJarlais (R-TN), Jodi Lamb.

From Jodi Lamb of Big G Express located in Shelbyville, TN: After being inspired by a speech given by Michael Keeling at the Tri-Chapter ESOP Conference in Pinehurst, NC, along with other blog posts and YouTube videos shared by The ESOP Association, I decided to take advantage of my time in DC for the National ESOP Conference and visit with my Senators and Representatives. The process was not as intimidating as it may seem and the staff members were more than happy to take time and meet with us. It probably helped that I had a few friends from college who work on Capitol Hill and were able to get me in touch with the right people, but overall everyone was very willing to schedule a time to hear our “ESOP story.” Donna Walseth, our Chapter administrator, was more than helpful during the process and got me in touch with other members from our Chapter who would be at the Conference. Sayward Masselter, President of The New South Chapter, and Donna came along for the meetings, which was an added bonus. When talking about ESOPs, we were able to share our company stories, how the ESOP was formed, and the benefits we had seen. It was nice to have a different perspective as we each brought a unique story to the table.

From left to right – Sayward Masselter, Congressman Scott DesJarlais (R-TN), Jodi Lamb.

The Advocacy Kit, provided by The ESOP Association, was an excellent tool and made it easy to speak intelligently about ESOP legislation. There are even handouts to leave for Congress! Everyone was receptive to what we had to say and seemed to genuinely enjoy hearing about how ESOPs have been assets to our companies and helped us remain strong even during the economic downturn. This was a great experience and I would recommend that anyone that has the opportunity take the time to make visits with your representatives in Washington.

From a press release from Rex-Cut Abrasives of Fall River, MA: Employee owners of Rex-Cut Abrasives met with U.S. Senator Scott Brown (R-MA), U.S. Representative William Keating (D-MA), and U.S. Senator John Kerry’s (D-MA) Legislative Correspondent on May 10, 2012 in Washington, DC to discuss the importance of employee ownership through ESOPs in America.

As an ESOP Company, Rex-Cut Abrasives advocates to keep these unique business models on the minds of business leaders, educators, and elected officials. ESOP companies have a very positive 35 year track record of providing locally controlled jobs that provide significant benefits in high performing companies. For example, during the recession of 2009, employees of employee-owned companies were four times less likely to be laid off than employees of conventionally-owned companies (General Social Survey, February, 2010).

Individuals from Rex-Cut Abrasives with Senator Scott Brown (R-MA).

Founded in 1928, Rex-Cut Abrasive is a manufacturing company that provides the Metalworking Industry with high performance, non-woven cotton fiber and other premium abrasive products offering time saving solutions for our worldwide customer network. In 2008, Rex-Cut became an ESOP company. The ESOP has had a very positive effect on the company, as it created broad-based ownership among employee owners, and fostered an environment in which everyone understands his or her role in helping the company improve its bottom line and achieve the company’s objectives.

During the visit to Washington, DC for The ESOP Association Conference, Rex-Cut Abrasives along with other members of the New England Chapter, asked Brown, Keating, and Kerry to advocate on the behalf of ESOP companies by supporting two bills currently on the table; H.R. 1244 the Promotion and Expansion of Private Employee Ownership Act of 2011 and S. 1512 the Promotion and Expansion of Private Employee Ownership Act of 2011.

“The enactment of these bills would continue to allow Congressional policies to encourage employee ownership through an ESOP,” said Maria Prado, Vice President, Human Resources. “We are counting on members of Congress to stand up for ESOPs and employee ownership in America.”

From Sandy Paavola, Chair of the Government Relations Sub-committee for the Association’s Wisconsin Chapter; Ms. Paavola is Enterprise Services, Inc. located in Delafield, WI: During the national ESOP Association Annual Conference in Washington, DC, members of our Wisconsin Chapter visited Capitol Hill to meet with members of Congress and their staff.

During these visits we achieved our main objectives:

Educate about ESOPs and the benefits of employee ownership.

Discuss the current pro-ESOP legislation that encourages the creation of ESOPs (H.R.1244).

Raise awareness about the possibility of the DOL re-proposing regulations re-defining the definition of fiduciary.

Strengthen our relationship and rapport with Congressional leaders, so that they know us and our cause.

Reinforce our position with Congressional members and their key advisors to make our voices heard (particularly in the case where tax law is drafted that negatively impacts ESOPs).

This was our fourth annual organized effort as a Chapter, and we made a total of four visits, one for each of the House members that represent those ESOP companies in attendance. A brief recap on our visits follows; the individuals who attended either one or multiple Hill visits include:

Congressman Sean Duffy (R-WI) – Our Chapter met with Congressman Duffy and his Legislative Assistant, Jon Hoelter. Leading the visit was Park Manor, Ltd., the Wisconsin Chapter ESOP Company of the Year. The Congressman was interested in hearing how Park Manor was doing and discussed healthcare and Medicare/Medicaid funding issues with the group. We also discussed current proposed legislation, explained ESOPs, and shared employee ownership culture issues. We asked for the Congressman’s support on issues relating to ESOP companies, particularly as tax revenue policies are advanced. We also requested for his support on H.R. 1244; he indicated he would review it. Congressman Duffy expressed his interest in visiting Park Manor in Park Falls this upcoming October during Employee Ownership Month.

Congressman Ron Kind (D-WI) – Our Chapter met with Congressman Kind and his legislative assistant, Rachel Stanley. The Congressman is a strong proponent of ESOP companies, as evidenced by his initial co-sponsorship of H.R. 1244. Serving on the House Ways and Means Committee, he is in a key position on tax and finance related legislative issues. Congressman Kind was gracious in his time with us, openly discussing educational issues that impact Realityworks (constituent from Eau Claire) as well as ESOP related issues. We thanked him for his ongoing support, and asked that he discuss H.R. 1244 with other Wisconsin House members that have yet to sign on to the bill.

Congressman James Sensenbrenner (R-WI) – Our Chapter met with Congressman Sensenbrenner and his legislative assistant, Matt Bisenius. Congressman Sensenbrenner is supportive of ESOPs, and made sure that we knew that we should have as many pro-ESOP friends as possible on the House Ways and Means Committee, as tax revenue policies will be decided there and will likely come to the House floor for vote without the ability to modify the bill. We also discussed our hope to have the Congressman visit an ESOP company when he is back in the state sometime this year.

Congresswoman Gwen Moore (D-WI) – Since Congresswoman Moore was not available, we met with her Legislative Counsel, Sean Gard. We discussed current ESOP legislation, our concern about tax legislative changes, shared employee ownership statistics and benefits, and asked that he pass along our thanks for the Congresswoman’s support for H.R.1244. This was our second official contact with Congresswoman Moore’s office; we hope to build on our visit and continue dialogue with her. We asked for her to visit one of our ESOP companies when she is back in Wisconsin so she can see the power of employee ownership at work.

Conclusion

Overall, we were excited about the visits, garnering support and awareness of our cause. The time spent was a critical reminder that we must not take the current legislation benefiting ESOPs for granted. We need to constantly remind our representatives in Washington how great employee ownership is for their constituents, keeping this issue on the top of their minds as debate continues about deficit reduction and tax law changes. It is up to all of us to advocate the issues that impact the ESOP community, and we must all make a commitment to create opportunities to talk about the benefits of ESOPs with our Congressional leaders.

We hope to continue this effort each year in connection with the Annual ESOP Conference in DC, expanding on the number of Congressional members visited. In order to do so, we look for more member companies to join us in Washington next year to talk ESOP with their district’s representative.

We also want to encourage you to host a Congressional visit at your ESOP company. The Chapter officers are here to help you with the details! Together we can continue our goal to educate and advocate for ESOPs and legislation that promotes employee ownership!

June 29, 2012

As many of you know, we’ve been following Iowa Governor Terry Branstad’s ESOP initiative program since the beginning of 2012. The bill was introduced earlier this year, and mentioned in the Governor’s State of the State speech, and was finally signed in May 2012 by Governor Branstad.

You can read the full text of the law here. The section on the Iowa ESOP initiative begins on page 48.

NEW PARAGRAPH. e, (1) To the extent not already excluded, fifty percent of the net capital gain from the sale or exchange of employer securities of an Iowa corporation to a qualified Iowa employee stock ownership plan when, upon completion of the transaction, the qualified Iowa employee stock ownership plan owns at least thirty percent of all outstanding employer securities issued by the Iowa corporation.

(2) For purposes of this paragraph:

(a) “employer securities” means the same as defined in section 409(1) of the Internal Revenue Code.

(b) *Iowa corporation” means a corporation whose commercial domicile, as defined in section 422.32, is in this state.

(c) *Qualified Iowa employee stock ownership plan” means an employee stock ownership plan, as defined in section 4975(e)(7) of the Internal Revenue code, and trust that are established by an Iowa corporation for the benefit of the employees of the corporation.

Additionally, you can read Governor Branstad’s statement on the close of the 2012 legislation session here.

Here’s what he had to say about ESOPs in his statement: “Legislation passed by this General Assembly will provide our Iowa Economic Development Authority with additional tools to help meet our administration’s ambitious goal to create 200,000 new jobs. We have made significant progress on that goal during this first year and a half and the High Quality Jobs Incentive Fund and Employee Stock Option Plan legislation will help accelerate those efforts.”

J. Michael Keeling, ESOP Association President had this to say: “We here at The ESOP Association are pleased to see this law to encourage the creation of new ESOPs in Iowa. We know what an ESOP brings to a company, to the company’s employees, and to the community where the company is located. Research has proven that ESOP companies are more productive, more profitable, and more sustainable, providing locally-controlled jobs. Obviously, Governor Branstad knows and appreciates what an ESOP company can bring to a community.”

We’ve included several posts about the Iowa bill on the blog this year. Links are below:

June 27, 2012

The Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) has not yet released a new version of its proposed regulation on the definition of a fiduciary but officials at the EBSA are still focused on ESOPs. (See the June 25, 2012 blog post on reaction of U.S. Senator to indications DOL will not be altering its proposal to mandate all ESOP appraisers be ERISA fiduciaries.) According to an article in the June 12, 2012 edition of the Daily Tax Report, Assistant Secretary of Labor for EBSA, Phyllis C. Borzi, said the EBSA will be focusing on enforcement projects having to do with employee benefit plan contributions in the coming months.

There are several national enforcement projects EBSA will focus on in 2012, concerning ESOPs specifically though, the article states the following: “The Employee Stock Ownership Plans Project, which identifies and corrects violations of ERISA in connection with ESOPs, such as incorrect valuation of employer securities and refinancing of ESOP loans.”

“The fact that Ms. Borzi is naming ESOPs specifically in the list of enforcement projects for 2012 illustrates that there are dark clouds over ESOPs at DOL and its proposal to make all ESOP appraisers ERISA fiduciaries,” said ESOP Association President J. Michael Keeling.

June 25, 2012

Senator Kelly Ayotte (R-NH) has sent a Dear Colleague letter to her Senate colleagues seeking co-sponsors for her pro-ESOP bill, S. 1232 — “a bill to modify the definition of fiduciary under the Employee Retirement Income Security Act of 1974 to exclude appraisers of employee stock ownership plans.”

Senator Ayotte’s letter discusses how S. 1232 (S. 1232 was introduced June 20, 2011) would prohibit the Department of Labor (DOL) from moving forward with its proposed regulation on the definition of a fiduciary. Her letter goes on to state that the proposed regulation would not only hurt ESOPs already in place but would jeopardize the creation of new ESOPs, result in the purchase of additional insurance coverages, the need to employ specialized counsel to deal with the new regulation, and expose ESOP companies and fiduciaries to unnecessary litigation. Her letter goes on to say that not only is the proposed regulation a hindrance to a program that is providing retirement benefits to employees, the proposed regulation is also an unnecessary step as there are rules already in place to correct ERISA violations. From the letter, “S. 1232 prohibits the DOL from moving forward on this proposal by creating an explicit exemption for ESOP appraisals from ERISA’s stringent fiduciary requirements. It is a pro-small business solution and simply codifies what has been in practice for over 35 years.”

Additional information about S. 1232 can be found on the Association’s website here and here.

As the Association has mentioned in previous newsletters and on the Association’s blog, the DOL is not backing down on its ESOP stance (See page 5 of the June 2012 issue — Department of Labor’s ESOP Tune Isn’t Changing — for more information. The June issue is available in the members only section of the Association’s website.).

Senator Ayotte’s spokesperson indicated that the Senator feels the DOL is not listening to the ESOP companies’ protests about its proposal which at this time is on “hold” at the Department. Statements by DOL officials indicate no intent to alter its aforementioned proposal with regard to ESOPs.

“The DOL continues to state that ESOPs will be closely examined and incorrect valuations are of particular concern as officials in the DOL’s Employee Benefits Security Administration have repeatedly stated,” said ESOP Association President J. Michael Keeling. “We thank the Senator for taking the lead on this issue. The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of creating jobs that are locally controlled in high performing companies. ESOPs are good for employees, companies, and our communities. The ESOP community needs to ask Senators to join Senator Ayotte and her current co-sponsors.”

June 19, 2012

In June 2012, J. Michael Keeling, ESOP Association president, sat down to talk about why advocacy work is important to the ESOP community and how you, as employee owners, can make a difference in the discussion. We wanted to share that video with you today.

The framework of his presentation is a respected poll of senior Congressional staffers and top DC lobbyists that unveils what influences staff recommendations to members of Congress when they make major decisions, such as what tax benefits to eliminate in a tax reform bill.

June 19, 2012

In June 2012, J. Michael Keeling, ESOP Association president, sat down to talk about why advocacy work is important to the ESOP community and how you, as employee owners, can make a difference in the discussion. We wanted to share that video with you today.

The framework of his presentation is a respected poll of senior Congressional staffers and top DC lobbyists that unveils what influences staff recommendations to members of Congress when they make major decisions, such as what tax benefits to eliminate in a tax reform bill.

June 18, 2012

The 2012 Summer Advocacy and Congressional Company Visit Kits are now available for download on The ESOP Association’s website. Links for the Kits are located under News on the right side of the homepage. Links are also posted below:

May 30, 2012

The following article originally ran in the May 2012 issue of the ESOP Report, the newsletter of The ESOP Association, as the Washington Report column. Archived issues of the ESOP Report can be found in the members only section of the Association’s website.

Talk inside the beltway says that tax reform is to be developed and enacted in 2013. And, of course, 2013 is around the corner.

While it is absolutely foolish to ever predict with assuredness what the U.S. Congress will do, or not do, many Congressional leaders and their top staff aides who work on the tax committees, repeat to press, and at conferences, that 2013 is the year.

While relying on the past is not fool proof, the past is prologue; as the Association’s YouTube post on tax reform set forth (http://youtu.be/SxxyMf_Zjvs) looking at the last time Congress did tax reform, and the time line of that tax reform process, can be indicative of what to expect.

One, it is somewhat irrelevant that while the goal might be to have on the President’s desk by year-end 2013 a tax reform bill, it probably will not be finished until mid-year 2014.

The 1986 Tax Reform Act actually was developed by the House Ways and Means Committee in 1985.

Two, what the House Ways and Means Committee does with a big tax bill in terms of specific provisions is the primary changes in law that the President signs.

Ergo, what is done in the House Ways and Means Committee with regard to ESOP tax laws is very, very important. There are opportunities, and some precedent to alter a House Ways and Means approved tax bill, but they are not great — at best, a 20% chance.

Allies of ESOPs in Congress, as evidenced by Senator Mitch McConnell’s message to the 35th Annual Conference (You can watch Senator McConnell’s remarks here http://youtu.be/OKycW_BGrSc.), and remarks made by Congressman Peter Roskam [R-IL] to an ESOP PAC breakfast, may be met with cynicism by most ESOP fans these days with their recommendation that protecting ESOPs means telling the ESOP companies’ stories, Congressional district by Congressional district, in an old fashioned one on one style. But, no matter what national news says, or political opponents say, engaged, sincere voices still have impact on an elected official. [Sadly, TV commentators and others have led many Americans, on which our democracy depends, to think only big money, even in the form of bribes, is the way to “win” in DC. If that were true, ESOPs would have been dead long ago, as the primary ESOP voice in DC for the past 30 plus years is not big money, nor does it ever, ever think about nefarious activities.]

So, ESOP advocates need to lace up their shoes, as yesterday was too late to make the case for ESOPs with your elected officials, but today can suffice.

All the tools, including macro data proving ESOPs are good for employees, companies, local communities and America are on The ESOP Association’s website.

Indiana Senate Race and ESOPs: With the win of Indiana State Treasurer Richard Mourdock, a former executive with an Indiana ESOP company, in the Republican primary, there is a proven friend of ESOPs in the running for a seat in the U.S. Senate. There is no question that as of this moment in the U.S., there is really no noticeable ESOP voter. [See, reprinted on the Association’s website the pamphlet, “Why We Do Not Win Every Time: It’s Us, Not Them” for fuller review of impact of no ESOP voters.]

Many ESOP advocates in Indiana have heard Treasurer Mourdock say to general audiences that his belief in ESOPs embodies the epitome of free enterprise that can benefit many, many more Americans. And, he developed a program in Indiana that was instrumental in ESOP creation in eight Indiana companies.

The ESOP community’s interest in this Senate race is not about being against anyone, or being negative towards anyone; it is about being loyal to someone who is extremely pro-ESOP.

May 18, 2012

Iowa Governor Terry Branstad and Lt. Governor Kim Reynolds visited the Adair, Iowa plant of ESOP Association member Owner Revolution Inc. on March 8, 2012. The following is from a press release the company shared with The ESOP Association.

Owner Revolution Inc. is a 100% employee-owned ESOP company with plants in Adair and Atlantic, Iowa. The company manufactures a wide variety of plastic products for the lottery, consumer, marine, OEM (Original Equipment Manufacturer) and point of purchase markets.

“Ours is a company that many have probably never heard of,” said Don Hudak, President and CEO of Owner Revolution. “Yet, we make a wide variety of terrific products, do business in all 50 states and 70 countries and are vital to the economic vitality of rural Iowa. As an ESOP, we are particularly proud of our employee owners who through their hard work and dedication give us a competitive advantage that helps us differentiate ourselves and serve customers better.”

“I hope that our visit will draw attention to this growing and successful Iowa company,” said Gov. Branstad. “We need to spread the message to all Iowa industries to learn more about and consider our own Iowa companies first when seeking plastic OEM parts and other plastic supplies.”

“We must share the urgency of Iowans to revitalize our economy,” said Lt. Gov. Reynolds. “Owner Revolution, Inc. is a wonderful example of an employee-owned Iowa company that is growing and creating jobs for today and careers for the future.”

May 15, 2012

At The ESOP Association’s 35th Annual Conference in Washington, DC, Senator Mitch McConnell (R-KY) delivered, by video, a message to ESOP Association members during the Employee Ownership Foundation Luncheon on May 10th.

A long-time advocate for ESOP companies in Kentucky, Senator McConnell’s message to Association members encouraged everyone to talk to their member of Congress about ESOPs and employee ownership. He specifically cited figures from the 2010 General Social Survey proving employee stock ownership companies were more than four times less likely to lay off employees than conventionally owned firms during the 2009 recession. The Employee Ownership Foundation is the primary funding source for questions on the survey about employee ownership in the U.S.

“We thank Senator McConnell for taping this message to members of The ESOP Association,” said ESOP Association J. Michael Keeling. “It’s important for us, as a community, to remember how vital it is to share information with members of Congress that proves employee stock ownership is good for America.”

May 9, 2012

At The ESOP Association’s Annual Conference in Washington, DC, Senator Mitch McConnell (R-KY) will deliver, by video, a message to ESOP Association members on May 10th at the Employee Ownership Foundation Luncheon.

A long-time advocate for ESOP companies in Kentucky, Senator McConnell’s message to Association members will encourage everyone to talk to their member of Congress about ESOPs and employee ownership.

If you are attending the 2012 Annual Conference, join us at the Thursday Lunch.

May 7, 2012

If so, we have two videos for you. With the 2012 Annual Conference taking place May 10 and 11, 2012 in Washington, DC, we know many Association members will be meeting with members of Congress. These are two topics that may come up in discussions. Take a look and find out what you need to know.

May 4, 2012

If so, stop by the Association’s website and download a copy of the Spring Advocacy Kit. We have resources available to help plan your visit and information on pro-ESOP legislation to use during the visit.

Copies of the 2012 Spring Advocacy Kit and Congressional Company Visit Kit are available here:

April 24, 2012

While the Department of Labor announced in late 2011 that it would issue a new version of the proposed regulation revising the definition of ERISA fiduciaries in January 2012, nothing has been forthcoming. However, that doesn’t mean the ESOP community can relax.

J. Michael Keeling, president of The ESOP Association, took time to talk about the proposed regulation and what to expect in the coming months.

April 20, 2012

A government relations primer for employee ownership advocates and a personal message from ESOP Association President, J. Michael Keeling, on the government relations work of The ESOP Association and its members.

An excerpt:

After years of trying to persuade our national leaders to become active and intense about spreading employee ownership in America, and after talking about this effort with employee owners throughout our nation, I am continually challenged by employee ownership advocates with this refrain:

“Why do the Congress and President not do more to promote employee ownership effectively? And why, oh why, do we see periodic efforts, sometimes successful, to actually reduce the number of ESOPs and employee ownership in America? Why do top leaders in both the House and the Senate, and the White House, sometimes agree to steps to decrease the number of employee owners, not increase the number?”

April 18, 2012

If so, download a copy of the 2012 Spring Advocacy Kit. We have resources available to help you plan your visit and information on pro-ESOP legislation to use during your visit. If you’re planning a company visit, take a look at the Congressional Company Visit Kit as well. Copies are available below.

April 13, 2012

The 2012 Spring Advocacy and Congressional Company Visit Kits are now available for download on The ESOP Association’s website. Links for the Kits are located under News on the right side of the homepage. Links are also posted below:

Also, if you’re setting up a meeting with your member of Congress during the Association’s Annual Conference in May, or recently met with your member of Congress, drop us a note. We love to hear about these meetings and may even feature a few here.

April 4, 2012

The following ran as the Washington Report column in the March 2012 issue of the ESOP Report, the newsletter of The ESOP Association. A copy of the ESOP Report can be downloaded from the members only section of the Association’s website.

When Senator Olympia Snowe announced, unexpectedly, that she was not going to seek re-election, many persons dedicated to ESOPs and protecting ESOPs against misguided attempts by certain “experts” to eliminate, or curtail, ESOP promotion laws contacted me wondering, “Will this be very bad for us to lose this super champion?”

[While most readers of this column follow the Association and its members’ efforts to keep ESOP law strong, to refresh memories, Senator Snowe made an unequivocal pronouncement last fall pledging to protect current ESOP law during tax reform. The Association posted this pledge on its YouTube Channel, (to view the video, use this link youtu.be/8H-RAtdvji0) and noted that in its 35 years of work for positive ESOP law, no member of Congress has ever made such a pledge for ESOPs. Most members of Congress hedge their bets on how they will conduct themselves in the private meetings where tax laws are truly hashed out, as no one can predict precisely what proposals will be in front of the legislators. It is important to note, in no Congressional district in the U.S., nor in any state of the U.S., are ESOP companies so numerous to be a major economic factor.]

And what many may not realize, there are more members of Congress than ever in history having taken public positions in support of pro-ESOP law and regulation; 160 at last count. Of that 160, ten have announced retirement or have been defeated for re-election in a primary, and thus will not serve in Congress beginning in 2013 when consensus view is serious work will begin on tax reform, and ESOP law will be reviewed for possible change. And that list will grow to 12 in a few weeks as four ESOP advocates are facing off in primaries to be held before the end of March. It is easy to predict that the 12 can be as high as 20, up to 30, by year’s end.

But, let the ESOP community not fret; while the media seldom makes this point, turnover in the Congress is greater than the general assumption. A good way to think about turnover in Congress is not to count how many new members there are every two years, but to think of “compound interest.” Anywhere from five to ten percent of House and Senate members retire and/or are defeated every two years. In three election cycles, or six years, the number of relatively “new” members of Congress falls anywhere between 75 to 144 persons.

And, the ESOP community, when it had far fewer friends in Congress, suffered a much more dramatic development when former Senator Russell B. Long, the godfather of ESOP promotion law, retired in 1987. Many in the ESOP community felt that with his retirement it was going to be curtains for ESOPs.

But it was not, and really in the past 14 years, only positive new law has been enacted for ESOPs. [Senator Long said to representatives of The ESOP Association upon sensing a fear of losing upon his retirement, “If the ESOP people cannot protect and preserve positive ESOP law after I leave, then ESOPs do not deserve to keep those laws.”]

In sum, Senator Snowe leaving Congress is a stumbling block for protecting ESOPs. As the old maxim goes, however, the ESOP community should make its stumbling blocks its stepping stones. So, expect, as in prior years, the strong grass roots voices of the ESOP community to respond effectively after losing friends in Congress.

March 12, 2012

At the end of March, the Department of Labor’s Employee Benefits Security Administration (EBSA) will sponsor a two part retirement plan webcast regarding fiduciary responsibilities: Getting It Right – Know Your Fiduciary Responsibilities.

It will take placeMarch 27th and 28th, 2012, from 1:00 pm – 2:30 pm EDT.

Information about the webcast and registration information is available on the EBSA website.

According to the EBSA website, part 1 will focus on basic fiduciary responsibilities, prohibited transactions, and exemptions under ERISA. Part 2 will feature information on reporting and disclosure provisions and the Department’s voluntary correction program.

The ESOP Association Submits Comments to House Ways and Means Committee on Tax Reform

March 7, 2012 (Washington, DC) – On March 7, 2012, The ESOP Association submitted comments to the House Ways and Means Committee which held a hearing on the treatment of closely-held businesses in the context of tax reform. Ninety percent of the Association’s approximately 1,500 corporate members are closely-held and over 1,000 are structured as S corporations.

Citing the 2010 General Social Survey evidencing that companies with employee stock ownership were four times less likely to lay off employees during the Great Recession than conventionally owned companies, ESOP Association President, J. Michael Keeling, urged the Congress to consider job sustainability when reforming the Federal tax code.

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

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March 6, 2012

We know many ESOP Association members in the state are working to further the ESOP cause as well. Which is why when we came across this, we weren’t really all that surprised – Legislative Report from Sen. Pat Ward: Help Iowa Workers Buy Into Employer’s Businesses.

Senator Ward is a member of the Iowa State Assembly.

If you’re curious and would like to follow the discussion, the Iowa State bill is HF 2085. More info here.

Do you live Iowa? Are you following the ESOP debate going on in the state?

February 28, 2012

Back in mid-January, the IRS released data from their 401(k) plan questionnaire which was sent to 1,200 people in 2009 and 2010. According to the results, which were presented at a Los Angeles Benefits Conference hosted by the American Society for Pension Professional and Actuaries, only a tiny percentage of plans allow participants to invest in company stock. To be specific, according to the questionnaire – about 1% of plans allow investments in employer securities. Final results from the questionnaire will be released later in 2012.

“The use of company stock as an investment option for employee investments in a 401(k) is rare in over 95% of U.S. companies that are not traded publicly. Public companies aside, only a small percentage of businesses in the U.S., or any other nation for that matter, offer company stock as an option, but even this number has declined since the sagas of Enron, WorldCom, and the many stock drop cases. The IRS data is not surprising,” said ESOP Association President J. Michael Keeling.

These reports specifically recommended pass-through entities, such as S corporations, be taxed as C corporations, if the receipts of the S corporations are greater than a fixed amount. (The 2005 report the amount was just $10 million).

President Obama’s proposal also argues that S corporations should not have an advantage over C corporations.

The 2005 Report and the 2010 Report also both suggest repealing all ESOP tax benefits, most in the law since 1984.

“I find it incredulous that the President travels the country talking jobs, jobs, jobs, yet his corporate tax reform policy will stifle the best jobs sustaining program in the U.S. For example, the 2010 General Social Survey found that less than 3% of employees of companies with employee stock ownership, which include the ESOP model and other forms of employee stock ownership, were laid off in 2009-2010 compared to a 12% rate for employees without employee stock ownership,” said J. Michael Keeling, president of The ESOP Association. “My gosh, why does the Administration want to cut back on a program that creates companies that are more productive, more profitable, in the vast majority of instances, and provide sustainable jobs that are locally-controlled.”

“We look forward to making the case for ESOPs to Congress and the media in light of this proposal from the Administration,” said Keeling.

If you would like copies of the 2005 and 2010 Reports, please use the links below:

February 22, 2012

Newly updated 2012 Winter Advocacy and Congressional Company Visit Kits are now available for download on The ESOP Association’s website. The Kits have been updated to include new research from the 2010 General Social Survey (GSS) that showed employees in the U.S. who had employee stock ownership were four times less likely to be laid off during the Great Recession than employees without employee stock ownership.

February 14, 2012 (Washington, DC) – The ESOP Association welcomed a provision in the revenue section of President Obama’s FY 2013 Budget as an example of positive work by the Federal officials working in the IRS and the Office of Tax Policy of the Department of Treasury.

The proposal, set forth in summary table S-9, Mandatory and Receipt Proposals, page 224 of the “Budget of the United States Government, Fiscal Year 2013,” provides as a tax simplification measure to “clarify exception to recapture of unrecognized gain on sale of stock to an ESOP,” with no revenue impact.

“To explain,” said ESOP Association President, J. Michael Keeling, “the proposal clarifies an issue involving divorce, and since 1985, one of the most widely used tax provisions encouraging the spread of employee stock ownership, I.R.C. 1042.”

I.R.C. 1042 provides that the seller of qualified employer securities to an ESOP, that holds 30% of the privately-held company’s higher class of stock subsequent to the sale, the seller may defer payment of the capital gains tax on his/her proceeds from the sale, as long as he/she reinvests the proceeds in qualifying securities of another U.S. corporation. I.R.C. 1042 further provides, however, that if the seller disposes of his/her equities acquired from the proceeds from the sale to the ESOP, he/she will owe the capital gains tax based on the original value of the shares sold to the ESOP.

The President’s Budget notes in its explanation of the proposal ESOP law clarification that I.R.C. 1041 provides that, when pursuant to a divorce decree a spouse divorcing is given title to shares, he/she does not recognize gain and owe tax.

Currently, there is an issue of whether the I.R.C. 1042 recapture tax applies even if the shares were acquired because of a divorce decree. The clarification would be: No, the recapture tax of I.R.C. 1042 takes a backseat to the I.R.C. 1041 exclusion.

“While the ‘fix’ may not sound dramatic, it evidences the open-minded, objective implementation of our tax laws by those at Treasury and IRS tasked to be sure ESOPs comply with law,” said Keeling. “Sure, sometimes the ESOP community disagrees with the men and women of Treasury and IRS interpretation of ESOP law, but we know their interpretations are based on honest efforts to enforce laws passed by Congress, and not in some adversarial motive to ‘get’ ESOPs as ERISA plans.”

“So, in sum, this is a positive proposal clearing up a conundrum sometimes faced when a couple with 1042 stock unfortunately divorce,” stated Keeling.

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information: website – www.esopassociation.org and blog – www.esopassociationblog.org.

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January 24, 2012

The 2012 Winter Advocacy and Congressional Company Visit Kits are now available for download on The ESOP Association’s website. Visit ESOPAssociation.org, the links for the Kits are located under News on the right side of the homepage. Or, use the links below to download your copy.

January 23, 2012

Last week, Iowa Governor, Terry Branstad, gave his annual State of the State speech and mentioned a new ESOP initiative program. We posted about it here.

As we do with most information, we also posted a link to the information on our LinkedIn group. We wanted to share some comments with you.

Stephen Ringlee • I hope folks realize that this did not happen by accident but was the result of an intensive push by ESOP Association members, in particular the Iowa/Nebraska chapter. We outlined for senior State policy makers the benefits of ESOPs as job retention and long term economic growth tools. Our Legislative Committee is now planning to hold a similar introduction at the Nebraska Capitol on Feb 28th, at the time of our IA/NE annual meeting, to introduce ESOPs to NE policy makers and to meet with senior State officials to highlight what Iowa is doing next door. We hope that NE responds with similar initiatives.
Steve Ringlee
Ames, IA

J. Michael Keeling • Yes, here at the national office we were aware of our Association’s Iowa/Nebraska Chapter leaders’ grass-roots, effective work with the Governor’s office and staff. We are proud that our “style” is from the heart, and is not some “astro-turf” style where “big” money, inside-the-beltway types act like they are important. Thanks Steve for letting our community know of your and your fellow ESOP advocates work. J. Michael Keeling, CAE, President, The ESOP Association

We’ve said it before and we’ll say it again, persistent, respectful communication with an elected official is more important than relying on the one time-at-bat home run.

If you’re interested and would like to learn more about meeting with your member of Congress and other elected officials, you can find the information on our website:

January 19, 2012

Last week, Iowa Governor, Terry Branstad, gave his annual State of the State speech. We won’t get into the specifics of the speech but if you’re interested, you can read the full speech here. It’s also posted here on the Iowa state website.

What we were surprised and happy to hear was this:

“We must work to keep Iowa companies in Iowa, even when an ownership change takes place.

This is not just a tool for Iowa businesses; it is a tool for Iowa communities–Iowa communities where these companies represent so much more than jobs; where these companies represent our families, friends and way of life.

Many of these companies have operated in Iowa for years, operated by owners committed to the local way of life. And when these owners wish to retire, they must have options for keeping their company local.

I am proposing legislation that will encourage the formation of Employee Stock Option Plans to encourage the sale of these local businesses to the very employees who have made that company a profitable success.

Our plan will encourage more Iowans to own a stake in their company, to reap a greater share of the fruits of their own labor, and to help protect the quality of life in their local community.

Employee ownership is great for the Iowa communities in which these businesses, jobs, and careers exist.”

Obviously, we here at The ESOP Association are pleased to see a proposal to encourage the creation of new ESOPs in Iowa, and to assist our existing companies, take root in Iowa. With 28 corporate members in the state, one of which we honored last year as the ESOP Company of the Year, Van Meter, Inc., we know what an ESOP brings to a company, to the company’s employees, and to the community where the company is located. We can only surmise that Governor Branstad understands that ESOP companies are more productive, more profitable, and more sustainable, providing locally-controlled jobs.

January 4, 2012

We talk a lot about meeting with your members of Congress — why it’s important, how to setup a meeting, goals, outcomes — and we think it’s just as important to highlight the successes.

Take Stephen King, an employee owner at Gala Industries, Inc., an ESOP Association member located in Eagle Rock, VA. Mr. King has been writing letters and meeting with Congressman Bob Goodlatte of Virginia’s 6th District (Mr. King’s member of Congress.) for some time now, and when he was invited to an event being held by the Congressman in November 2011, Mr. King made the decision to go and speak to Congressman Goodlatte about ESOPs. He shared this email with the Association this week:

“To all:

In early November I was invited to attend a “Dutch Treat Luncheon” in Daleville with Congressman Bob Goodlatte, “to discuss issues of national and local importance.” Having just mailed the Congressman a letter (See Attachment #2) asking him to cosponsor a bill (H.R. 1244) that had been introduced in the House of Representatives, I took advantage of the invitation, thinking it would be a great opportunity to personally ask him to co-sponsor the bill. After listening to his presentation about our country’s ever growing debt issue, etc., those in attendance were able to ask the Congressman questions regarding pretty much anything. Questions ranged from the need for Daylight Savings Time, to government involvement in the banking industry, to employment hiring practices.

Towards the end of the meeting, I finally addressed the Congressman regarding his past, positive support of ESOPs, and asked him to consider signing on as a cosponsor to the H.R. 1244, and also presented him another copy of the letter that I had mailed the week before. Congressman Goodlatte spent several minutes discussing ESOPs and expressed his support for the ESOP concept, actually referencing a plan he and his chief of staff have to introduce some legislation to help ESOPs cut through some red tape that we have to deal with now.

I am happy to report that yesterday I received a letter from Congressman Goodlatte (See Attachment #3) telling us he had cosponsored H.R. 1244 and he “will work hard to see it signed into law.”

If you have any questions regarding this or any other ESOP issue, please feel free to ask.

Regards,

Steven King”

Letters of this nature are great to see and we thank Mr. King for his work on behalf of the ESOP cause. As Mr. King knows so well, persistent, respectful communication with an elected official is more important than relying on the one time-at-bat home run. A key point as Congress will review ESOP tax benefits at some point over the next two years.

If you’re interested and would like to learn more about meeting with your member of Congress, you can find the information on our website:

December 12, 2011

In a statement delivered September 15, 2011 to the Massachusetts Legislature’s Joint Committee on Labor and Workforce, Robert J. Haynes, president of the Massachusetts AFL-CIO, noted that the group was in support of employee ownership. Massachusetts state bill, H.B. 2305, “An Act Relative to Job Creation Through Employee Ownership,” which was introduced in 2011 would require business owners to notify employees of eligibility to purchase a business prior to its sale.

In his statement Haynes said, “Broad based ownership by workers is a highly preferable form of business ownership that should be encouraged in our Commonwealth. By structuring themselves in this fashion, businesses are more likely to remain locally owned and controlled and can better share the rewards of ownership with the very workforce that makes the success of profits of the company possible.” You can read the full statement here.

“This statement is very significant,” said J. Michael Keeling, president of The ESOP Association. “Massachusetts, and in fact all of New England, are great supporters of employee ownership and we are delighted to see this statement by Mr. Haynes.”

December 2, 2011

Many of our members have shared with us pictures and information from their meetings with members of Congress. We thank them for taking the time to setup these meetings and make that all important connection with their member of Congress.

Today, we wanted to share with you information from a visit hosted by ESOP Association member, Restek Corporation located in Bellafonte, PA. The company hosted a meeting with Congressman Glenn Thompson (R-PA) on Wednesday, November 23, 2011.

Mike Shuey, Customer Service, Domestic Supervisor for Restek Corporation shared this email with us after the visit:

“Hello all. The visit was excellent. We presented him and his assistant with a folder full of company, ESOP and Capitol Hill information for review. We thanked him for supporting H.R. 1244, gave him a sheet to address the Secretary of Labor and he gave us a list of Senators to address our ESOP concerns and questions with so Restek will put together a team in the near future for that. I attached most of the documents we presented to him and his assistant. As soon as I get our pictures I’ll send them to you. Thank you all for your support and help. Have a great Thanksgiving!!!!!!!”

Mike’s thank you all was both to the national office and the Pennsylvania/Delaware Chapter leaders in particular, Alice Simons of SES Advisors, Inc. in Philadelphia, PA. He also included several documents which are great examples of what to share with your member of Congress during a company visit and we wanted to share those with you here. (Click on the title to open the document.)

As J. Michael Keeling said, “Restek did professional work on this visit. They’re a true model and the entire ESOP community thanks Mike, Restek and our Pennsylvania/Delaware Chapter for the effective, true grassroots advocacy.”

Take a look at the above and feel free to use these as examples in putting together your company visits.

As many of you know, there are several resources on The ESOP Association’s website to help in setting up a Congressional meeting.

November 28, 2011

On November 18, 2011, the U.S. House Committee on Education and the Workforce sent a letter to Assistant Secretary of Labor, Employee Benefits Security Administration, Phyllis Borzi, in regard to the Department of Labor’s (DOL) proposed regulation on the definition of a fiduciary and her testimony given at a July 26, 2011 Committee hearing. The hearing, “Redefining Fiduciary: Assessing the Impact of the Labor Department’s Proposal on Workers and Retirees,” was held to examine the Department’s proposed regulation on the definition of a fiduciary. If you would like to view of a copy of the letter, click the following – Committee on the Education and Workforce Letter to the Honorable Phyllis Borzi.

We’ve talk about the DOL’s proposed regulation on the blog numerous times. If you would like a re-cap, please visit this page. This page contains information on the proposal going back to November 2010 when The ESOP Association and its members began protesting the regulation. The regulation, as of September 2011, has been withdrawn but the DOL has stated it will issue a new proposal in early 2012. The fact that the letter, dated November 18, 2011, was sent after the withdrawal of the proposals sends a strong message that concerns about the impact of this proposal have not been alleviated by the DOL.

The letter to Assistant Secretary Borzi, signed by the Committee on Education and the Workforce Chair, John Kline (R-MN), and Chair of the Subcommittee on Health, Employment, Labor and Pensions, Phil Roe (R-TN), states, in addition to pointing out that the proposal should be published with a full economic analysis, that “The empirical rationale for proposed changes to the regulation has not been forthcoming.” A list of questions regarding the problems the DOL wishes to solve with the proposed regulation was posed to Assistant Secretary Borzi. It was also pointed out that earlier in 2011 the Committee had sent Assistant Secretary Borzi a letter and additional requests for information after her testimony to the Committee. Those requests for information were answered late and incompletely in the opinion of the Committee.

Among the list of 12 questions regarding the proposal was an ESOP related question under the section of questions marked “Scope of the Purported Problem:”

“3. Similarly, how many enforcement actions have been brought against ESOP trustees that have hinged on faulty valuations? What have been the outcomes of these cases?”

Congressman Todd Rokita (R-IN), in early 2011, sent a letter to Assistant Secretary Borzi about the proposed regulation regarding information on faulty valuations and asking for clarification from the Department. As the Association stated in a blog post of May 24, 2011, (Note: you will need to scroll down to the May 24th entry.) — DOL is moving to establish the “details” of what is a correct private ESOP company appraisal as opposed to having the transparency to say, “We do not like the way nearly all ESOPs are valued by appraisers that claim to be good appraisers, who probably do all the appraisals of the ESOP companies who are members of The ESOP Association.” If you would to read a copy of the response from the DOL’s EBSA to Congressman Rokita, click the following Congress Rokita and EBSA exhange on ESOPs.

On May 23rd of this year, the Association wrote to the Office of Management and Budget about the proposed regulation pointing out that in preparing and issuing the proposed regulation that ESOP appraisers be ERISA fiduciaries, the DOL ignored Executive Order 13563 from the White House about how to develop and issue regulations. This Executive Order guides Executive Branch agencies to only issue regulations, or to at least use a process in developing regulations, that does not impose harsh burdens on business — especially small businesses. The Association’s letter to the Administrator of the Office of Information and Regulatory Affairs, Mr. Cass R. Sunstein, stated that the DOL’s proposed regulation did not meet the standards set in the Executive Order. If you would like to read a copy of the Association’s letter, click the following ESOP Association’s Letter to Office of Information and Regulatory Affairs.

The letter from the Committee on Education of the Workforce echoes many of the Association’s thoughts in regard to the proposed regulation and its impact on small businesses and the burdens that will be placed on the companies trying to provide retirement security for their employees.

Obviously, we’ll be watching and reporting on the outcome of this when information is available.

November 18, 2011

On November 16th, we posted ESOP Association President, J. Michael Keeling’s speech to the attendees of the 2011 Las Vegas Conference and Trade Show held November 3 – 4, in Las Vegas, NV. In the speech, he mentions a message from Senator Olympia Snowe, which was delivered to the Association’s New England Chapter at the Chapter’s October 2011 meeting. Today we want to share that video with you.

In this video, Senator Snowe reviews her knowledge of ESOP companies in Maine, her work to protect ESOPs from the pernicious DOL proposal, her work in supporting legislation to create more private company ESOPs, and her pledge as a member of the Senate tax committee to work to keep all ESOP tax laws intact during the tax reform work of Congress.

Her remarks about her knowledge of ESOP companies in Maine providing locally-controlled jobs is solid evidence that personal, and consistent “back home” interaction between ESOP companies and representatives in Congress will develop the voice the ESOP community needs when Congress reviews tax laws and ESOP tax incentives.

November 16, 2011

Note: Following are remarks ESOP Association President J. Michael Keeling delivered at the Association’s 2011 Las Vegas Conference and Trade Show held at Caesars Palace in Las Vegas, NV on November 3 – 4, 2011.

Remember these words. These words need to be our ESOP community’s message to decision makers and thought leaders during these challenging political times.

There is ample, overwhelming evidence that in the vast majority of cases, the vast majority of mainstream, main street, private ESOP companies are: “More productive, more profitable, more sustainable, providing locally-controlled jobs.”

Before I do, let me repeat what I have said to 15 of our 18 ESOP Association Chapters since late August: Everything I say has been said on our blog, on our Facebook page, on our LinkedIn page, and in our newsletter. If you prefer not to listen, please read the blog. If something develops at 9 AM in the morning impacting, or potentially impacting ESOPs and employee owners, we report it and opine on it by 10:30 AM.

Our number one challenge this year has been to defeat, and/or to alter the Department of Labor’s October 22, 2010 proposal that appraisers of your ESOP stock be ERISA fiduciaries. In fact it was here, at the 20th Las Vegas Conference and Trade Show, that our campaign to stop the DOL proposal began.

We’ve made progress, and I do add that many last year felt that we, the ESOP community, would not be able to effectively stand against the DOL proposal. They were wrong; but the campaign is not over. DOL will re-propose the regulation in early 2012. Let me say that some claim the DOL will never re-propose the regulation; others say it will be re-proposed almost identical to its original provision that ESOP appraisers be ERISA fiduciaries.

I say why do we care what the future is with regard to what DOL may or may not do? Let us prepare for the worst. Let us continue to be strong in our opposition to the original proposal until we see a new proposal with a different approach. Why take a chance and let our guard down?

There is still a minority in our community that wonder why we do care. Their view is that the DOL proposal would only be a pain in your-know-where for appraisers, not the ESOP companies that have to retain appraisers each year.

Let me be clear: If your appraiser is an ERISA fiduciary your company will be a sitting duck for lawsuits motivated by former disgruntled employees teaming up with local plaintiff law firms.

I’ll explain. In my 30 some odd years working around ESOP companies, I’ve seen that the most common reason a private ESOP company is sued is due to a former senior executive who has been asked to leave the company seeking revenge. In every town and city in America, in Marion, IN, Salina, KS, Waco, TX, and so on, there are local attorneys who are promoting their services on cable and local TV. Now don’t get me wrong, I’m an attorney by training and this is not attorney bashing, just telling you what you all know — in today’s society companies are being sued often, and the attorneys’ bringing the lawsuits are always looking for new reasons to do so.

So, I can predict that if your ESOP company appraiser is an ERISA fiduciary, that lawyer responding to a former disgruntled employee will go through the litany of potential claims — age, sex, religion, etc., and if the DOL proposal becomes final, saying, “Ah, have you ever disagreed with the valuation?” The aggrieved former employee will probably say, “You betcha.” And the lawyer will say, “We have a lawsuit.”

Now, ESOP companies usually win lawsuits; but the average ESOP private company does not have the time, the resources, or the money to go through pre-trial motions, depositions, etc., and will likely settle for $50,000 to $250,000; a good payday for plaintiff lawyers on main street USA.

So, we need to stop the DOL proposal.

Here is a concern I have. The proposed DOL rule also impacts 401(k) plans and IRAs. Now, k plans and IRAs are much bigger in our economy than ESOPs. Loosely, I would call it the Wall Street crowd that is involved with the trillions and trillions of dollars involved with k plans and IRAs. And while it took the Wall Street world a little longer than the lean and mean ESOP community to realize the threat the DOL proposal could mean to their k plans, their IRAs, and their k and IRA customers, once galvanized, candidly, their footprint is bigger than ours.

We have to remain vocal as some think the re-proposed DOL proposal will take care of the k and IRA concerns, but continue to harm ESOPs.

And as a side bar, I know many ESOP advocates have written to their members of Congress about the DOL proposal’s potential negative impact on ESOPs, but have received letters back mentioning k plans and IRAs, but nothing about ESOPs. I did a column in the ESOP Report that should you get such a letter, respectfully, but with clarity, write, call, email again noting that you appreciate hearing about the k and IRA issues, but you inquired about the ESOP issues in the DOL proposal.

Moving this report to the legislative sector, there is a bill pending in the U.S. Senate that would stop the DOL proposal dead in its tracks.

On June 20th of this year, Senator Kelly Ayotte of New Hampshire introduced S. 1232, which would amend ERISA Title I with clear cut language that the law excludes making appraisers of ESOPs fiduciaries.

The story of how Senator Ayotte, elected in the fall of 2010, took the bold step of making sure ESOPs are protected in law from this disturbing DOL proposal is a wonderful example of how true grassroots advocacy by ESOP companies can make the difference in making sure ESOP law remains supportive of your ESOP.

Here is the story: I was driving down the New York Thruway in a thunderstorm, and the blue tooth rang on my smart phone. I answered, and it was a staff person with Senator Ayotte who said the Senator was going to introduce a bill to stop the negative ESOP proposal put forth by DOL.

Let me assure you at that point I had never met Senator Ayotte, nor the staff person who called me.

Prior to that moment, I had never talked to anyone in the Senator’s office.

The ESOP Association plays by the rules, and a few weeks after that call and the introduction of S. 1232, I signed up for a dinner with Senator Ayotte to support her re-election.

At the dinner, I went up to Senator Ayotte and introduced myself as President of The ESOP Association.

She, without hesitation said to me, “Yes, I visited with my New Hampshire ESOP companies and they made clear to me how harmful that DOL proposal would be to their companies, and I decided not to let that happen.”

What is the message? It’s not some hired gun in Washington, D.C. that is going to make sure Congress, nor a Federal agency, doesn’t harm your ESOP, our ESOP cause — in fact if I had walked into the Senator’s office prior to the advocacy work of our New Hampshire ESOP companies, she would probably have had me arrested by the Capitol Hill police. It’s you, and you, and you, and your employees who will save ESOPs from misguided ESOP cynics in Washington, D.C. who think ESOP tax laws are rip-offs.

And she has been joined by other powerful Senators, such as the leader of the Senate Republicans, Senator McConnell of Kentucky and Senator Blunt of Missouri to name two.

But let us continue on the legislative discussion.

As I travel around our nation — I have visited 15 of the Association’s 18 Chapters since the last week of August — I hear over and over —- “Oh, what about tax reform? Congress is going to take away ESOP tax benefits. Congress will tax S ESOPs. What can we do? How can we stop tax reform?”

Folks, the ESOP community is not going to stop tax reform. President Obama is for tax reform. The Republicans running for President are for tax reform. Democrats and Republican in Congress are for tax reform. The academics are for tax reform. The think tanks, left and right, are for tax reform.

THERE WILL BE TAX REFORM.

But do not fear tax reform. Have a game plan for tax reform. Execute the game plan. And the game plan can be summed up with the true adage, “The best defense is a good offense.”

I don’t know how many of you watched the Cowboys-Eagles game last Sunday night, but after the Eagles scored two touchdowns, I said to myself, “Gosh, the Cowboys need to hold onto the ball; they need to generate some offense to keep the Eagles off the field.” Well for those who watched, you know that for the Cowboys it was three and out, and the Eagles just kept getting the ball back to score until it seemed they were tired of scoring at will.

Let me explain why a good offense is our best defense when Congress does tax reform. Let me say I spell out what I am about to say in the September 2011 ESOP Report.

How does Congress, or better the House Ways and Means Committee, the House tax committee, which under our Constitution has to originate all tax bills, decide what to put in a tax bill?

The decision is not what you see on TV, or in an 8th grade civics book. A small group of men and women who serve on the Ways and Means Committee meet in a private session behind closed doors. They often are just the members of the party in control of the Committee — currently the Republicans.

When they sit down, they’re often given summary sheets of what the Chair, at this time Congressman Dave Camp of Michigan, wants in the big tax bill, in our case a big tax reform bill. Sometimes, the Chair provides options on the summary sheets; sometimes he says the sheets represent his proposed bill.

Before he has the staff pass out the sheets, he has reviewed all possible options with the staff, who are experts in tax law.

Now the chances are very high that on those sheets, say page 28, or page 59, or 109, there will be listed ESOP tax benefits as possible items to take out of the tax code in order to use the “new” revenue to lower Federal tax rates, the announced goal of tax reform.

If a member of the Committee, in that closed meeting, does not raise her or his hand saying, “I don’t want those anti-ESOP provisions in this bill,” then the anti-ESOP provisions will stay in the bill, will be voted on by the full Committee, with the Chair winning what came from the closed meeting. But if someone raises her or his hand, and says, “I don’t want to see those ESOP provisions in this bill,” and three or four other members, not knowing the details but knowing they have publicly taken a position with their ESOP constituents that indicates support of ESOPs, say “I agree with Congressperson X,” then the provision will be dropped, and will not be included in the bill presented for a public vote in the Committee.

Now, even if only one party is in the closed room, the Chair will usually take the same sheets and ask the top member of the minority party if his people have any problems with what is in the bill. On minor provisions, if that top minority member says some of his people don’t like the ESOP provisions, they will be dropped.

I can tell you that over the years I have stood outside the closed room and have had a member who was in the closed room come out and say, “I tried to help your cause, but no one joined me.” And I have found out after some digging that member said nothing about the cause I was interested in.

So, how do we, ESOP advocates, get someone to say, “I don’t support the negative ESOP proposals,” and have others chime in with verbal support of that position?

We do it by having a good offense, that, prior to the small group of members sitting down in the closed room going over staff recommendations, has motivated members to publicly take a stand for ESOPs, for ESOP companies in their districts, by openly supporting legislation to expand ESOPs in America, to make operating an ESOP more attractive in America.

The specific tactic is to have a pro-ESOP bill introduced BEFORE the tax reform legislative process begins. And it’s to have many members of Congress co-sponsor that pro-ESOP bill BEFORE the tax reform legislative process begins.

This is why there are these effort to have more members of Congress sponsor H.R. 1244 in the House and S. 1512 in the Senate.

We are making good progress with having men and women of Congress take the pro-ESOP stance by co-sponsoring H.R. 1244 and S. 1512. The bills are endorsed by both our Association and the Employee-Owned S Corporations of America, and both have members working directly, personally, with their members of Congress to sign up supporters.

As of today, 56 members of the House are sponsoring H.R. 1244. This House bill was introduced last March. The record number of House members co-sponsoring a pro-ESOP bill was 123 in 1993. Our goal should be to reach 100 plus by the end of 2012. More important, 15 members of the Congressional Committee that will develop the tax reform bill, be it in 2012, 2013, or 2014, the House Ways and Means Committee, are supporting H.R. 1244. We need a solid two thirds of the members of Ways and Means to be supporters to protect ESOP law in tax reform, to enhance the possibility of one, two, three of those members holding their hands up to say do not hurt ESOPs.

And, by the way, if we could have that display of support for H.R. 1244, we might defy conventional wisdom and have pro-ESOP tax incentives added to the tax reform bill, such as permitting owners of S stock to utilize IRC 1042 like owners of C stock have done since 1984.

Now the Senate bill, S. 1512, was not introduced until this past September, but already there are ten Senators on board, a good mix of Republicans and Democrats, including three members of the Senate tax committee, Finance. We need 15 supporters on that Committee to win.

I know many of you, probably the overwhelming majority of you who hear me say these things think, “So what, Congress is dysfunctional and full of baloney.”

Let me be a contrarian — with regard to smaller public policy issues, which, whether we like it or not, ESOP policy fits into this category.

While it may be true that on big issues the gridlock and petty posturing in D.C. is super annoying, on small issues the process of legislation still works as it always has — bi-partisan support is doable, and essential.

Decisions on most issues in Congress, with input from the Executive Branch, are like most decisions made by small groups, defined as ten to 25 members of Congress. These people serve on the same committee or subcommittee. They get to know one another. They know about their colleagues’ family, sports likes and dislikes, they talk about the weather, travel, and the trials and tribulations of life, such as being in a traffic jam trying to get to work, that we all do with our co-workers.

Think of your own co-workers. I doubt you really love all of your co-workers; or really agree with everything they believe in. But you work together; you accomplish mutual tasks; you are human beings and thus do not demonize your co-workers.

So on ESOP issues there is still reason to educate and persuade your members of Congress to be pro-ESOP, be it in supporting pro-ESOP legislation, or defending ESOPs in the tax reform process.

I admit our national mood is different, and faith in our democracy and in our Federal government wanes.

There are two developments in the past decade that are making our government less functional than in the 20th Century.

One is the 24-7 news networks pandering to those who have either the right wing view, or the left wing view. Unlike the 20th Century news outlets that were no more than three TV networks, and thus tried to be balanced in order to obtain ad revenue, now a cable news network can get enough ad money by proving it reaches all the conservatives, or it reaches all the liberals. In turn, those who can’t stand the Democrats, listen to good things about Republicans. And those who can’t stand Republican values listen only to good things about Democrats.

In the process, the metric becomes, “Who will win the next election?”

For example, the day Colonel Gadhafi fled Tripoli one network was not focused on the fact there were thousands of tons of mustard gas that his regime controlled, thousands of shoulder held rockets that are perfect to shoot down commercial airliners. What was this TV network focused on? It kept saying that after the commercial break its panel of top advisors of political experts was going to discuss whether this overthrow would help President Obama get re-elected? My thought was, “Who cares? What about the mustard gas, the rockets, and the influence of the jihadists in Libya?”

In other words, these elected officials, who want to go on these cable news shows want to show that he or she is “solid” with the hard core group he or she belongs to. So, on the big issues, like debt, taxes, spending, they cannot budge after yelling about the other view on their favorite cable network.

Another development that has made compromise on the big issues near impossible is social media.

I grew up in East Texas, and it was the Old South. The view to impeach Chief Justice Warren was strong due to his leading the Supreme Court to declare a person with dark skin could go to school with a blue-eyed, white skinned person. Many thought former President Eisenhower was a Communist, and former President Johnson had orchestrated the murder of at least eight political opponents.

But these extreme views pretty much stayed in East Texas, and those in East Texas who had these views didn’t connect with someone in Maine, Minnesota, Montana, and so on who might think the same way.

Today, when someone posts on her or his Facebook page, or similar social network, that President Obama is a Communist-Muslim, which of course is a huge contradiction, no one can be both, there are people in all 50 states that read this, and are likely to believe it.

So the never ending 24-7 cable news pandering to those with set views, left or right, and social media linking conspiracy theorists, makes it look as if the nation is just about extremes and will never come together.

My son played soccer as a youth — he was a good soccer player. For a few years, his coach was a true Italian. I don’t mean a second or third generation Italian, but a real Italian who was in America working for the World Bank.

When things weren’t going well for the team, or just so-so, he would often say in exasperation — “I am so ‘foostrated;’ I am so ‘foostrated.’”

Well, I am foostrated.

The President goes all over the nation touting a “jobs” bill to get our economy back on track, putting more Americans back to work. Most people say, “Didn’t we have a ‘jobs’ bill in 2009?”

Meanwhile, the leader of the Republicans, Speaker of the House John Boehner, says we need to cut the C corporate tax rate and that will create jobs. Today, most main street businesses are not C corporations and are pass-through organizations. Cutting the C corporate rate might help the big multi-national U.S. corporations, but not main street businesses like in this ballroom today.

Now, don’t get me wrong. I’m not anti-big business. Many of the ESOP companies in this room rely on big business as the major purchasers of their goods and services. Nearly 50% of Americans work for big business.

But I am foostrated because neither the leader of the Democrats, nor the Republicans, realizes this nation has a proven jobs policy. It is modest. It could be bigger, but it does in the vast majority of instances, create jobs in companies that are more productive, more profitable, more sustainable, and providing locally-controlled jobs.

That’s right — our national policy to promote employee ownership through the ESOP model is the proven jobs policy.

I suspect ESOP advocates are like me and are foostrated when national leaders never mention ESOPs as a successful jobs policy.

Now I know there are many articles and so-called “experts” that blast ESOPs as flim-flam. A few years back I reviewed these anti-ESOP articles, and discovered nearly all, if not all in recent years, were written by lawyers for law journals, or law students for law school publications. None were written by qualified social scientists like we had speak to us yesterday as Kelso Fellows. It’s foostrating to see law judges quote these non-qualified lawyers acting like social scientists, when the work by social scientists proves overwhelmingly most private ESOP companies are more productive, more profitable, and more sustainable, providing locally-controlled jobs.

What do we do? We look in the mirror, and we don’t point fingers blaming “others.” It’s in our hands to implant the true message with our national leaders that ESOP policy is a good jobs policy creating companies that are more productive, more profitable, more sustainable, and providing locally- controlled jobs.

And I have proof that what I just said is true. We can make the difference, as our ESOP advocates in New England have done with the Senator Olympia Snowe, the senior Senator from Maine. Please see the message Senator Snowe delivered to the New England Chapter’s Annual Conference two weeks ago in Portland, Maine.

[At this point in Mr. Keeling’s remarks, a seven minute video was shown of remarks by Senator Snowe reviewing her knowledge of ESOP companies in Maine, her work to protect ESOPs from the pernicious DOL proposal, her work in supporting legislation to create more private company ESOPs, and her pledge as a member of the Senate tax committee to work to keep all ESOP tax laws intact during the tax reform work of Congress. The video will be available on The ESOP Association’s YouTube Channel.]

So there is the proof that grassroots, personal, human, contact that lays out the story of an ESOP company, backed up with materials showing the macro data supporting ESOP policy, not an astroturf, mass email campaign, can persuade elected officials that ESOPs are a good jobs policy, and good for the employees, the company, the community, and our nation.

It’s up to us to convince decision makers that ESOPs are more productive, more profitable, more sustainable, providing locally-controlled jobs.

When we do, we will preserve, and enhance your ESOP for your employees and your company, and for America. We can overcome.

Thank you.

November 8, 2011

If you attended the Association’s Las Vegas Conference and Trade Show last week, you probably heard ESOP Association President J. Michael Keeling’s speech on what the Association is doing in the government relations arena. We’ll be posting a Conference re-cap but thought we would share this list as the first part of the wrap-up.

Below is a list of members of Congress who have sent letters or made statements questioning the Department of Labor’s (DOL) proposed regulation that would have made ESOP appraisers ERISA fiduciaries. Thirteen members of the House of Representatives and nine members of the Senate are listed below. If your member of Congress is listed, please consider sending a letter thanking them for their support of employee ownership through ESOPs.

House of Representatives

Rep. Leonard L. Boswell (IA-D-3rd)

Rep. Charles Boustany (LA-R-7th)

Rep. Bruce Braley (IA-D-1st)

Rep. Larry Bucshon (IN-R-8th)

Rep. Geoff Davis (KY-R-4th)

Rep. Brett Guthrie (KY-R-2nd)

Rep. Maurice D. Hinchey (NY-D-22nd)

Rep. Dave Loebsack (IA-D-2nd)

Rep. David McKinley (WV-R-1st)

Rep. Alan Nunnelee (MS-R-1st)

Rep. Martha Roby (AL-R-2nd)

Rep. Todd Rokita (IN-R-4th)

Rep. Todd Young (IN-R-9th)

Senate

Sen. Kelly Ayotte (NH-R)

Sen. Roy Blunt (MO-R)

Sen. Scott P. Brown (MA-R)

Sen. Susan M. Collins (ME-R)

Sen. Mary L. Landrieu (LA-D)

Sen. Patrick Leahy (VT-D)

Sen. Mitch McConnell (KY-R)

Sen. Bernie Sanders (VT-I)

Sen. Olympia J. Snowe (ME-R)

November 1, 2011

Leading up to the Las Vegas Conference and Trade Show, November 3 – 4, 2011, we’ll be posting government affairs information that will be discussed at the Conference. Today, an update on the DOL’s proposed regulation on the definition of a fiduciary.

Since late October 2010, The ESOP Association, and the ESOP community, has protest­ed vigorously against the Department of Labor’s (DOL) proposed regulation to make all appraisers of private ESOP company stock ERISA fiduciaries. On September 19, 2011, the DOL issued a press release announcing it would issue a new version of the regula­tion revising the definition of ERISA fiduciaries in January 2012, and begin the com­ment period, in essence, all over again. You can read the DOL press release here.

The DOL press release hints at leaving in the provision making ESOP appraisers ERISA fiduciaries when they value stock being acquired by a private company. In the opinion of The ESOP Association and many others, such an outcome would dry up ESOP transactions, the number of ESOPs would dwindle, the community’s voice in D.C. would be weaker, and ESOP benefits would be devastated. ESOP advocates were encouraged to continue to bring concerns about this proposed regulation to the atten­tion of members of Congress.

Then, on September 29, 2011, the Chair of the House Committee on Appropriations’ Subcommittee on Labor, Health and Human Services, Education, and Related Services, Congressman Denny Rehberg [R-MT], introduced a DOL appropriations bill for Fiscal Year 2012, among other Federal agencies, which contains the following provision:

“Section 109. None of the funds made available by this Act may be used to pro­mulgate or implement a final rule amending…the definition of the term ‘fiducia­ry’…including the proposed rulemaking published by the…Department of Labor on October 22, 2010…”

The reference is to the DOL’s proposed rule. Introduction of this bill does not mean the DOL proposal will go away, because a proposed bill is not necessarily going to be on the President’s desk for signing into law. Use this link for more information about H.R. 3070, the House appropriations bill for DOL funding.

We thank Congressman Rehberg for standing up to the DOL. We know his proposal was motivated by concerns over the proposed rule’s impact on k plans and IRAs as well as ESOPs. But his action, just as Senator Kelly Ayotte’s [R-NH] introduction of S. 1232 in June of this year, is a strong signal to DOL and its officials that they, when re-proposing the October 22, 2010 regulation, should not come close to what was in the original pro­posal. In fact, Congressman Rehberg’s proposal in this appropriations bill for FY 2012 is a pretty strong signal to DOL to just walk away from its original proposal 100%.

The ESOP Association will keep you posted on this regulatory proposal, and other efforts to stop the DOL from mandating that appraisers of private ESOP company stock be ERISA fiduciaries with bulletins, postings on its blog, Facebook page, and LinkedIn group.

Contact govrel@esopassociation.org if you have questions or stop by the Conference and Trade Show registration desk and ask for ESOP Association President, J. Michael Keeling.

NOTE: Mr. Keeling will be giving a legislative update at the Conference and Trade Show at the Friday, November 4th luncheon. Check your app schedule for time and location.

This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries. If the proposed regulation were to be finalized as is, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies open to lawsuits.

“We’re very pleased to see Senator Ayotte take the lead on this issue,” said ESOP Association President, J. Michael Keeling. “The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of creating jobs that are locally controlled in high performing companies. ESOPs are good for employees, companies, and our communities.”

“This bi-partisan declaration of support for employee ownership through the ESOP (employee stock ownership plan) model among privately held companies, especially by the popular S corporation business model, is very impressive,” stated ESOP Association President J. Michael Keeling.

H.R. 1244 will:

1.) permit owners of S stock to sell the stock to an ESOP and defer the capital gains tax on his/her gain if the proceeds are reinvested in the equities of U.S. operating corporations as owners of C corporations stock have done under IRC 1042 since 1984;

2.) permit lenders to S corporations with 50% or more ownership through an ESOP to exclude 50% of the interest from the loan if used to acquire stock for the ESOP;

3.) establish an office in the Department of Treasury to provide technical assistance to S corporations with ESOPs;

4.) provide that a small business, S or C, eligible for one of the many programs provided by the Small Business Administration to remain eligible for SBA programs if the company becomes owned 50% or more by an ESOP, and the workforce remains the same or nearly the same as before the establishment of the 50% ownership by employees through the ESOP.

October 27, 2011

Leading up to the Las Vegas Conference and Trade Show, November 3 – 4, 2011, we’ll be posting government affairs information that will be discussed at the Conference. Today, and update on S. 1512.

On September 6, 2011, S. 1512, the Senate counterpart to H.R. 1244, the “Promotion and Expansion of Private Employee Ownership Act of 2011,” was introduced by a bi-partisan group of Senators: Senators Benjamin Cardin (D-MD), Pat Roberts (R-KS), and Olympia J. Snowe (R-ME).

“What is important is these Senators recognize that our national ESOP policy, while modest, is responsible for millions of locally controlled jobs in high performing companies that ensure employees are securing a good retirement by being part of our globalized economy,” stated ESOP Association President J. Michael Keeling.

S. 1512 will:

1.) permit owners of S stock to sell the stock to an ESOP and defer the capital gains tax on his/her gain if the proceeds are reinvested in the equities of U.S. operating corporations as owners of C corporations stock have done under IRC 1042 since 1984;

2.) establish an office in the Department of Treasury to provide technical assistance to S corporations with ESOPs;

3.) provide that a small business, S or C, eligible for one of the many programs provided by the Small Business Administration to remain eligible for SBA programs if the company becomes owned 50% or more by an ESOP, and the workforce remains the same or nearly the same as before the establishment of the 50% ownership by employees through the ESOP.

Current co-sponsors:

Senator Roy Blunt (R-MO)

Senator Mary L. Landrieu (D-LA)

Senator Patrick J. Leahy (D-VT)

Senator Jerry Moran (R-KS)

Senator Pat Roberts (R-KS)

Senator Bernard Sanders (I-VT)

Senator Olympia J. Snowe (R-ME)

Senator Sheldon Whitehouse (D-RI)

October 17, 2011

The following article originally ran in the September 2011 issue of the ESOP Report, the newsletter of The ESOP Association, as the Washington Report column. Archived issues of the ESOP Report can be found in the members only section of the Association’s website.

The ESOP brand among members of Congress who have visited with ESOP companies, or have welcomed ESOP delegations to their Washington offices, is ESOP people are hard working, good Americans, who are civil — in other words, the ESOP brand is just the opposite of the screamers and the insulters. [Why people think salt is more effective than a little bit of sugar is hard to understand.]

But, in the ESOP community’s fight against the negative ESOP proposal from the Department of Labor (DOL) to make all appraisers of private company ERISA fiduciaries, many ESOP advocates are disappointed with the answers they are receiving from offices of both Senators and members of the House of Representatives in response to their respectful requests that their representative stand up for the pro-ESOP position and against the DOL position.

A brief note of explanation is needed for those not following this campaign closely before setting out what needs to be done by those who are disappointed with the answers they are receiving from their elected Federal officials.

The October 22, 2010, DOL announced a proposal that would redefine who is an ERISA fiduciary, not just appraisers of ESOPs, but anyone who gives advice about where to invest 401(k) money, including what investments to offer, where to put the money the employee invests, and what the employees do with the money, and anyone who does a similar task for those who are setting up, or investing in an Individual Retirement Account, or IRA.

Of the three areas of retirement savings — ESOPs, 401(k)s, and IRAs — the number of ESOPs, and the amount of money in ESOPs, and the number of persons who work in the ESOP service provider arena, is very small compared to the number of persons participating in 401(k)s and IRAs, the amount of money in 401(k) and IRAs, and the number of persons who provide services to 401(k) and IRA participants.

While it took the financial advisor firms, the k plan service providers, the banks holding IRAs, stock brokerage firms with thousands and thousands of people working with clients with IRAs and/or k plans, much longer to wake up to the danger of the DOL proposal than it did the ESOP community — being smaller means often leaner and more nimble — once awake, the k and IRA world have much heavier advocacy power than the ESOP community.

Plus the arguments for stopping the DOL proposal with regard to who is a fiduciary to k plans and IRAs are in several respects very different from the arguments for stopping the DOL ESOP appraiser proposal. [In some respects they are the same: lack of data supporting the proposed regulation, increase service provider fees, and blatant ignoring of what other Federal agencies, such as the IRS in the ESOP arena, and SEC in the banking/financial arena, do in this area even though there is a Presidential order that agencies coordinate their regulations.]

So what is the point of this column?

In brief, many ESOP advocates have reported to the national office they wrote, or visited, with their elected officials about the DOL proposal, and the response from those officials was about the k and IRA issues, not the ESOP issues. Some responses are very strong noting the member of Congress is doing all s/he can to stop the bad DOL “k and IRA” proposal. It is easy to see that the ESOP advocate receiving such a response wants to scream, “I wrote about ESOPs; not k and IRAs!”

Most ESOP advocates have in turn passed along their disappointment with a statement that “what do you expect” from these do nothing, know nothing, silly members of Congress we have these days.

Well, while the cable news that leans to the left says that about Republican members of Congress, and the cable news channel that leans to the right says the same about Democratic members of Congress, the fact is that getting disgusted will not win for the ESOP position.

So, we are adding to our advocacy kit a suggested “second” communication for the ESOP advocates to the member of Congress who has not understood what the ESOP advocate wrote about in the first instance — the ESOP message.

The second letter will be respectful, but will make it clear: an ESOP advocate with an ESOP company deserves to have her/his concerns respectfully considered.

[Candidly, a letter or message from a member of Congress missing the mark is all about bad staff work, but we have to be respectful of staff people as well.]

In other words, the ESOP brand of being civil and respectful will be honored always; but by gosh, what ESOPs do for employees and their companies, and their communities, needs to be respected.

October 12, 2011

ESOP Association member, Modern Group Ltd. based in Bristol, PA, and members of the Pennsylvania/Delaware Chapter, met with Congressman Michael G. Fitzpatrick (R-PA) to discuss ESOPs and employee ownership.

Congressman Fitzpatrick met with Modern Group’s employee owners including, Dave Griffith (CEO), Paul Farrell (COO), Steve Seminack (CFO), George Wilkinson (Chairman), and Tom Callahan (Sr. Vice President), for a brief overview of the company, then toured the service floor and offices. CEO Dave Griffith spoke about the company, its ESOP, and how it has fared through the recession. He asked for Congressman Fitzpatrick’s support of ESOP companies by writing to the Department of Labor to oppose the proposed regulation on the definition of a fiduciary that would make ESOP appraisers fiduciaries and by co-sponsoring H.R. 1244.

Thanks to Alice Simons of SES Advisors for sharing information and photos with the Association.

October 4, 2011

Since it is Employee Ownership Month (EOM) and many ESOP companies are planning and hosting events to celebrate, we thought we’d share a few posts about events as well. While this event didn’t take place during EOM, it’s a good example of the events and meetings that take place in October. For more information about EOM, visit The ESOP Association’s EOM page. If you have an event to share, drop us a line at media@esopassociation.org.

Holden Industries hosted Congressman Robert Dold (R-IL) at Holden’s Nosco, Inc. printed packaging facility in Waukegan, IL. A facility tour was followed by an hour-long town hall meeting with approximately 100 employee owners. Congressman Dold emphasized the number one issue facing the nation is jobs, as well as, discussing the fiscal issues facing Medicare and Social Security and the need for bipartisan solutions to solve these pressing problems.

Following the town hall meeting, the Congressman joined members of management and representatives of the company’s Employee Communication Committee to discuss issues of concern to Holden as a manufacturer and as an S corp ESOP company. Participants shared stories of how the ownership culture has impacted Nosco and other Holden operations, as well as, discussing the results of studies showing S ESOP companies performed better during the recession and employee owners of S ESOP companies retire with retirement accounts five to seven times greater than participants in 401K plans alone. Management emphasized the S ESOP structure enabled Holden employees to purchase the companies from the second generation owner, preserving the businesses and jobs in their current locations, enhancing their c

Congressman Dold at the town hall meeting with Holden employee owners.

competitiveness in the global business environment, and providing the opportunity to enjoy their retirement with dignity.

Holden management concluded the meeting by asking Congressman Dold to consider becoming a co-sponsor of H.R. 1244, explaining its provisions and the bipartisan nature of its support, including the five Illinois Congressman who have already become co-sponsors. Holden’s employee owners were joined by Mary Josephs of Verit Advisors who was instrumental in arranging the visit by Congressman Dold.

Thanks to Holden’s Art Miller for sharing information and photos from the meeting.

September 29, 2011

Today, the Chair of the House Committee on Appropriations’ Subcommittee on Labor, Health and Human Services, Education, and Related Services, Congressman Denny Rehberg [R-MT], introduced an appropriations bill for the Department of Labor for the Fiscal Year 2012, among other Federal agencies, which contains the following provision:

“Section 109. None of the funds made available by this Act may be used to promulgate or implement a final rule amending…the definition of the term ‘fiduciary’…including the proposed rulemaking published by the…Department of Labor on October 22, 2010…”

The reference is to the proposed rule that The ESOP Association and its members have been protesting since last year because it would have mandated that all appraisers of private company ESOP stock be ERISA fiduciaries.

The www.esopassociationblog.org has set forth in many instances why the DOL proposal would have been a bad blow to ESOP creation and operation.

Introduction of this bill does not mean — go here for information on the bill; a formal bill number will be released on September 30, 2011 — the DOL proposal will go away, because a proposed bill is not necessarily going to be on the President’s desk for signing into law.

But we thank Congressman Rehberg for standing up against the DOL. We know his proposal was motivated by concerns over the proposed rule’s impact on k plans and IRAs as well as ESOPs. But his action, just as Senator Kelly Ayotte’s [R-NH] introduction of S. 1232 in June of this year, is a strong signal to DOL and its officials that they, when re-proposing the October 22, 2010 regulation, should not come close to what was in the original proposal. In fact, Congressman Rehberg’s proposal in this Appropriations bill for FY 2012 DOL spending is a pretty strong signal to DOL to just walk away from its original proposal 100%.

The ESOP Association will keep you posted on this legislation, and other efforts to stop the DOL 2010 proposal mandating that appraisers of private ESOP company stock be ERISA fiduciaries with bulletins, and postings on its blog, Facebook page, and LinkedIn group.

The general view of the U.S. Congress right now is supposedly dog eat dog between the two political parties — the TV cable news says it, the social media says it, the President says it, members of Congress say it, academics say it, and so on.

Well certainly on big picture issues, such as how to control the national debt, how to lower medical care costs, etc., what everyone is saying about Congress is more or less correct.

Some ESOP advocates have heard the big picture news, and express concern that The ESOP Association and the community it represents has gone over to the “Republican” side too much. These advocates of course have values that trigger voting for Democratic candidates.

Whether one’s world view is more in line with the Democrats or the Republicans, on smaller public issues, and sadly ESOP policy is not a major public issue in the U.S., the general view of U.S. policy making is wrong — having supporters in both parties is the key to preserving a preferred small interest policy.

[For example, a positive signal from the hearing on the DOL appraiser regulation mentioned on page one, was criticism about the proposal was made by both Republican and Democratic members of the Subcommittee. If the critics were only Republicans, any impact on DOL officials would have been muted.]

So, is it the case that ESOP advocates are tilting in a major way to the Republicans in Congress, so that when the fight over tax reform erupts, and it will sooner or later, a risk if the pendulum swings back in favor of the Democrats before serious tax reform legislation is considered by Congress?

Well, here is the positive news. ESOP support is balanced in Congress — with an almost equal division between Republicans and Democrats, and even with equal division within the various factions of the two parties — with a good split between the newer Republicans who came to office with the strong backing of the Tea Party, and senior Republicans, and with a good split between the “moderate” Democrats and the “liberal” Democrats.

And there is data to back up this assertion.

Right now, there are 126 members of Congress who have publicly done something, such as co-sponsoring a bill, or writing a letter, in support of a pro-ESOP position. Ninety-eight are members of the House, and 28 are members of the Senate.

Fifty-four of the House ESOP advocates are Republicans, and 44 are Democrats. Since there are more Republicans in the House than Democrats, the ten person spread is not that off the mark of the overall percentage of House members divided between the two parties.

Among the 28 Senate ESOP advocates, 13 are Democrats, and 14 are Republicans, and one is an Independent, who caucuses with the Democrats, and has Committee assignments under the Democratic banner. So the split is really 50-50, and the Senate is nearly evenly split between the two parties.

But set aside the party affiliations. How did the 126 ESOP advocates vote on the debt ceiling increase that received so much attention in late July and early August?

Again, the 126 ESOP advocates split their votes almost the same as the rest of the Congress. Most voted yes, as did the entire Congress. Those voting no were primarily affiliated with their Tea Party backers if Republicans and if Democrats with their more liberal backers, such as those in the MoveOn organization.

Bottom line is that the development of ESOP friends in Congress has not been about which political party should reign; it has been about ESOP companies and advocates promoting the positive impact of employee ownership through ESOPs on employees, on the company, and on the local community.

ESOP advocates have done well, and when the tough fight over tax reform breaks out and it is debated whether to have tax preferences for ESOP creation and operation, this balance will be beneficial. ESOP advocates should continue to work for ESOPs in their communities, and not put their ESOP beliefs under a basket if their elected official is not of “their” party.

September 19, 2011

Since late October 2010, The ESOP Association, and the ESOP community, has protested vigorously against the Department of Labor’s (DOL) proposed regulation to make all appraisers of private ESOP company stock ERISA fiduciaries. Today, the DOL issued a press release announcing that it would issue a new version of the regulation revising the definition of ERISA fiduciaries in January 2012, and begin the comment period, in essence, all over again.

This news is a good trend line for pro-ESOP voices. On October 22, 2010, to use an analogy, when the “game” started, the ESOP community was already down two touchdowns. Today, we can say we’re at half time, and we’re tied going into the locker room.

But, there is still plenty of play in the months leading up to 2012 and beyond. For example, the DOL press release hints at leaving in the provision making ESOP appraisers ERISA fiduciaries when they value stock being acquired by a private company. Read the release here.

Such an outcome would dry up ESOP transactions in our view, and soon the number of ESOPs would dwindle, our voice in DC would be weaker, and ESOP benefits would be devastated.

So, do not back off; continue to bring concerns about this proposed regulation to the attention of members of Congress.

Clearly our message will be precise when the new proposed regulation is issued in early 2012. We will post suggested messages — for letter, telephone call, or if you have email green light from a staff member of your Senators and Congress person’s offices, for an email — on our website, blog, and social media sites, as well as in our Advocacy and Congressional Visit Kits.

PS: Just a note of some pride from this corner. The DOL press release cites the Department’s desire to comply with a White House directive issued in January 2011. The ESOP Association, to our knowledge, was the first to develop a point by point analysis why the October 22, 2010, DOL proposed regulation did not conform to the President’s Executive Order, in a communication to the Office of Management and Budget. Click here to read our June 6, 2011 post – Is the DOL Ignoring the Obama Administration?

September 15, 2011 (Washington, DC) – On September 15, 2011, The ESOP Association submitted a statement for the record to the Senate Committee on Finance which held a hearing examining tax reform options and the promotion of retirement security.

“We presented to the Committee data that shows ESOP companies and their locally-controlled jobs are more profitable, more productive, and more sustainable,” said ESOP Association President, J. Michael Keeling. “The best jobs program Congress could consider now would be encouraging more employee-owned companies.”

A copy of the statement can be found on the Association’s website here. A link to the statement is at the top of the page.

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

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September 14, 2011

On July 26, 2011, the House Committee on Education and the Workforce’s Subcommittee on Health, Employment, Labor, and Pensions (HELP) held an oversight hearing on the Department of Labor’s (DOL) proposed regulation to mandate that all appraisers of private ESOP company stock be ERISA fiduciaries.

Both Republican and Democratic members asked sharp questions, ranging from concerns about the impact on IRAs and 401(k) plans to ESOPs in private companies.

But without question, the inquiries about the proposal that hit home for the ESOP community were from freshman Indiana Congressman Todd Rokita (4th District). His questions stemmed from his disappointment to a letter he received from Secretary of Labor Hilda Solis. In May 2011, he asked for the Department to be more specific as to the extent of “bad” appraisals of ESOP companies. He pointed out that up to the time of his writing, all the Department had said in justifying its position was, “Many ESOP appraisals were wrong.” In short, he was asking how “many” is “many.”

Later in May, Secretary Solis answered his inquiry citing six law suits involving “bad” valuations as evidence that the proposed regulation was justified. One case dated from the early 90s involving a Mafia family and real estate. Two other cases were from the mid-90s. Only one was a recent case.

On July 26, Congressman Rokita was persistent in asking the Assistant Secretary of Labor, Phyllis Borzi, whose sub-department of the DOL, the Employee Security Benefits Administration (EBSA), issued the proposed regulation, to quantify the problem. He pointed out that six cases over nearly 20 years was not evidence of “many.” Additionally, he pointed out that probably since 1990 most likely 100,000 ESOP appraisals had been done, and the best EBSA could do was cite six?

ESOP advocates have in testimony, in letters, and verbally, expressed many problems with the DOL proposal; and several members of the HELP Committee, such as Representatives Roby (R-AL), Loebsack (D-IA), and Tierney (D-MA) raised questions critical of the DOL proposal.

But perhaps most frustrating is the charge that the ESOP world is full of flimflammers, shysters, and enablers of bad valuations that do not benefit employee owners. Congressman Rokita put his finger on the shallowness of this claim by the Department.

September 8, 2011

On September 6, 2011, S. 1512, the Senate counterpart to H.R. 1244, the “Promotion and Expansion of Private Employee Ownership Act of 2011,” was introduced by a bi-partisan group of Senators: Senators Benjamin Cardin (D-MD), Pat Roberts (R-KS), and Olympia J. Snowe (R-ME).

“What is important is these Senators recognize that our national ESOP policy, while modest, is responsible for millions of locally controlled jobs in high performing companies that ensure employees are securing a good retirement by being part of our globalized economy,” stated ESOP Association President J. Michael Keeling.

S. 1512 will: 1.) permit owners of S stock to sell the stock to an ESOP and defer the capital gains tax on his/her gain if the proceeds are reinvested in the equities of U.S. operating corporations as owners of C corporations stock have done under IRC 1042 since 1984; 2.) establish an office in the Department of Treasury to provide technical assistance to S corporations with ESOPs; 3.) provide that a small business, S or C, eligible for one of the many programs provided by the Small Business Administration to remain eligible for SBA programs if the company becomes owned 50% or more by an ESOP, and the workforce remains the same or nearly the same as before the establishment of the 50% ownership by employees through the ESOP.

A press release about S. 1512 is available on The ESOP Association’s website in the media section.

Friday, September 02, 2011

A few of you out there may have heard of the Department of Labor (DOL) ESOP Project. If you’re an ESOP Report reader, you’ll note it was briefly mentioned in the Advisory Committee on Valuation column in the August 2011 issue. (You can find the ESOP Report online in the members only section of the Association’s website.)

We bring it up here because of an article in the August 18, 2011 Daily Tax Report titled, “Failure to Offset Mutual Fund Fees Tops List of Provider Errors, Official Says.” The article in a general wrap-up of retirement plan topics and one happens to be the DOL’s ESOP Project.

Article re-cap: The most common problems with ESOPs, according to Jeffrey A. Monhart, acting director of the Office of Enforcement in DOL’s Employee Benefits Security Administration (EBSA), are unrealistic growth projections and improper discount rates. It also mentioned improper ESOP loan transactions relying on acceleration clauses that are not allowed under DOL rules as another problem. Another problem noted is failure to provide diversification when participants reach 55 with 10 years of service.

These comments expose the “hidden” intent of DOL’s proposal making an ESOP appraiser an ERISA fiduciary. It sets forth that DOL officials do not accept professional judgments of qualified appraisers with regard to discounts and economic projections. The truth is valuing a non-marketable asset will never be precise, and clearly all qualified appraisers have legitimate disagreements over discounts and economic projections. Supposedly in a recent DOL audit, in a position reported to the Association, the DOL thinks failure to predict the Great Recession resulted in a violation of ERISA. DOL’s EBSA team seems to be saying, “We have the final correct answers on all ESOP appraisals. If our views are not followed, there is an ERISA violation.”

The ESOP community has to keep opposing the proposed regulation.

The following posts are from The ESOP Association’s old blog and do not have direct links to posts.

Friday, August 12, 2011

The Friday, August 12, 2011 edition of The Wall Street Journal ran an editorial titled, “The Borzi Savings Bomb,” questioning the Department of Labor’s (DOL) proposed rule on the definition of a fiduciary including making all appraisers of private ESOP companies ERISA fiduciaries.

If you haven’t seen it, the major thrust of the editorial is that the DOL hasn’t justified the need for the regulation.

We’ve said from the beginning:

DOL’s proposal to mandate all appraisers of private ESOP company’s shares are ERISA fiduciaries is NOT just to police rogue, fly by night, unqualified persons performing ESOP appraisals.

To propose a regulation that will have major consequences for the entire retirement industry — and especially the ESOP community — without proof the rule is needed is, well, we’ve never been able to wrap our heads around the DOL’s thought process. And it seems we aren’t the only ones.

The editorial on The Wall Street Journal website is here. You will need a Journal account to read it online.

The editorial refers to a recent House Education and the Workforce Committee hearing held on July 26th where several members of Congress strongly questioned the value of and need for the proposed regulation. You can find additional information about the hearing here. You can find our thoughts on the outcome here.

Wednesday, August 10, 2011

Letters to the Department of Labor

During this year’s Annual Conference in Washington, D.C., many ESOP Association members paid visits to Capital Hill to meet with their members of Congress to discuss ESOPs and employee ownership. Among the numerous discussions that took place, the Department of Labor’s (DOL) proposed regulation to make appraisers fiduciaries was also on the agenda. Several members of Congress including: Senator Susan M. Collins (R-ME); Senator Scott P. Brown, (R-MA); Senator Kelly Ayotte (R-NH); Congressman David Loebsack (D-IA); Congressman Leonard Boswell (D-IA); Congressman Bruce Braley (D-IA); Congressman Todd Rokita (R-IN); Congressman Todd Young (R-IN); Congressman Brett Guthrie (R-KY); Congressman Larry Bucshon (R-IN); Congressman David McKinley (R-WV); and Congressman Alan Nunnelee (R-MS) have written to the U.S. Secretary of Labor, Hilda L. Solis, in regard to the proposed regulation. Many, if not all, of these letters came out of meetings with ESOP company representatives.

We want to thank members in New England and Iowa that made these letters happen. By taking the time to meet with members and explain how this proposed rule will affect small businesses directly they have garnered the attention of their representatives who have taken action on their behalf. As we have stated in prior emails and blog posts, the DOL seems set on its position in regard to valuation firms. We need to have more ESOP companies step up and ask their members of Congress to protest and question the proposed regulation to the DOL. See the blog on August Recess – Time to Setup a Meeting with Your Member of Congress.

Additionally, if you have received a reply from your members of Congress in regard to a letter to the DOL, please let us know. This list above is far from complete and we know many companies have been working with their members of Congress on this issue. If you would like information on how to ask your member of Congress to send a letter to the DOL, please visit the Association’s website for additional information.

These members of Congress were ESOP champions in the recent Congresses as sponsors and co-sponsors of pro-employee ownership legislation, and who will serve in the 112th Congress.

House of Representatives

Congressman Todd W. Akin (R-MO)

Congressman Rodney Alexander (R-LA)

Congressman Robert E. Andrews (D-NJ)

Congresswoman Tammy Baldwin (D-WI)

Congressman Rick Berg (R-ND)

Congressman Earl Blumenauer (D-OR)

Congressman John Boehner (R-OH)

Congresswoman Mary Bono Mack (R-CA)

Congresswoman Madeleine Z. Bordallo (D-GU)

Congressman Leonard L. Boswell (D-IA)

Congressman Charles W. Boustany, Jr. (R-LA)

Congressman Kevin Brady (R-TX)

Congressman Bruce L. Braley (D-IA)

Congressman Larry Bucshon (R-IN)

Congressman Ken Calvert (R-CA)

Congressman Dave Camp (R-MI)

Congressman Eric I. Cantor (R-VA)

Congressman Russ Carnahan (D-MO)

Congresswoman Donna M. Christensen (D-VI)

Congressman Emanuel Cleaver (D-MO)

Congressman James Clyburn (D-SC)

Congressman Howard Coble (R-NC)

Congressman Joe Courtney (D-CT)

Congressman John Culberson (R-TX)

Congressman Danny Davis (D-IL)

Congressman David Dreier (R-CA)

Congressman John Duncan, Jr. (R-TN)

Congresswoman Jo Ann Emerson (R-MO)

Congressman Barney Frank (D-MA)

Congressman Elton Gallegly (R-CA)

Congressman Jim Gerlach (R-PA)

Congressman Charles A. Gonzalez (D-TX)

Congressman Bob Goodlatte (R-VA)

Congressman Sam Graves (R-MO)

Congressman Gene Green (D-TX)

Congressman Raul Grijalva (D-AZ)

Congressman Brett Guthrie (R-KY)

Congressman Wally Herger (R-CA)

Congressman Maurice D. Hinchey (D -NY)

Congressman Tim Holden (D-PA)

Congressman Randy Hultgren (R-IL)

Congresswoman Lynn Jenkins (R-KS)

Congresswoman Eddie Bernice Johnson (D-TX)

Congressman Sam Johnson (R-TX)

Congressman Walter B. Jones, Jr. (R-NC)

Congresswoman Marcy Kaptur (D-OH)

Congressman Ron Kind (D-WI)

Congressman Dennis Kucinich (D-OH)

Congressman John Larson (D-CT)

Congresswoman Barbara Lee (D-CA)

Congressman Sander Levin (D-MI)

Congressman John Lewis (D-GA)

Congressman David Loebsack (D-IA)

Congressman Frank D. Lucas (R-OK)

Congresswoman Carolyn Maloney (D-NY)

Congressman Donald A. Manzullo (R-IL)

Congressman Kenny Marchant (R-TX)

Congressman Thaddeus G. McCotter (R-MI)

Congressman Howard McKeon (R-CA)

Congressman David B. McKinley (R-WV)

Congressman Michael H. Michaud (D-ME)

Congresswoman Gwen Moore (D-WI)

Congressman Tim Murphy (R-PA)

Congressman Richard Neal (D-MA)

Congressman Alan Nunnelee (R-MS)

Congressman Bill Pascrell, Jr. (D-NJ)

Congressman Ed Pastor (D-AZ)

Congressman Ron Paul (R-TX)

Congressman Erik Paulsen (R-MN)

Congressman Gary C. Peters (D-MI)

Congressman Collin Peterson (D-MN)

Congressman Thomas Petri (R-WI)

Congressman Todd Russell Platts (R-PA)

Congressman Jared Polis (D-CO)

Congressman Bill Posey (R-FL)

Congressman Nick Rahall (D-WV)

Congressman Charles Rangel (D-NY)

Congressman David G. Reichert (R-WA)

Congressman David Rivera (R-FL)

Congressman Dana Rohrabacher (R-CA)

Congressman Todd Rokita (R-IN)

Congressman Peter J. Roskam (R-IL)

Congresswoman Ileana Ros-Lehtinen (R-FL)

Congressman Edward Royce (R-CA)

Congressman Paul Ryan (R-WI)

Congresswoman Jean Schmidt (R-OH)

Congressman Aaron Schock (R-IL)

Congresswoman Allyson Y. Schwartz (D-PA)

Congressman Jose E. Serrano (D-NY)

Congressman Pete Sessions (R-TX)

Congressman Lee Terry (R-NE)

Congressman Mike Thompson (D-CA)

Congressman William Thornberry (R-TX)

Congressman Patrick J. Tiberi (R-OH)

Congressman Timothy J. Walz (D -MN)

Congressman Melvin Watt (D-NC)

Congressman Peter Welch (D-VT)

Congressman Todd Young (R-IN)

Senate

Senator Kelly Ayotte (R-NH)

Senator Max Baucus (D-MT)

Senator Jeff Bingaman (D-NM)

Senator Roy Blunt (D-MO)

Senator Scott P. Brown ((R-MA)

Senator Sherrod Brown (D-OH)

Senator Richard Burr (R-NC)

Senator Maria Cantwell (D-WA)

Senator Ben Cardin (D-MD)

Senator Saxby Chambliss (R-GA)

Senator Susan M. Collins (R-ME)

Senator Michael Crapo (R-ID)

Senator Charles Grassley (R-IA)

Senator Orrin Hatch (R-UT)

Senator Johnny Isakson (R-GA)

Senator Mary Landrieu (D-LA)

Senator Patrick Leahy (D-VT)

Senator John McCain (R-AZ)

Senator Mitch McConnell (R-KY)

Senator Robert Menendez (D-NJ)

Senator Jerry Moran (R-KS)

Senator Pat Roberts (R-KS)

Senator John D. Rockefeller (D-WV)

Senator Bernard Sanders (I-VT)

Senator Jeanne Shaheen (D-NH)

Senator Olympia J. Snowe (R-ME)

Senator Sheldon Whitehouse (D-RI)

Senator Ron Wyden (D-OR)

Friday, August 05, 2011

August Recess – Time to Setup a Meeting with Your Member of Congress

August means one thing in Washington, DC – summer recess for members of Congress. In August, every member decamps for home and this is a great time to setup meetings and invite your member of Congress to visit your company. There’s no greater way to show a member the power of an ESOP than to have him or her visit your company and see firsthand.

The data/history is overwhelming that a company visit cements ESOP support. Since 1984, the Association has pushed and pleaded for ESOP companies to “show off” for their members of Congress. Since 1984, of the hundreds of Congressional company visits, only one member of Congress did not become an ESOP advocate. And that one was neutral, not negative.

Having a member of Congress visit your company is one of the most important government relations activities you can undertake. It is that the most effective activity for obtaining support for ESOPs from a member of Congress. The company visit is more effective than a visit in the member of Congress’s home office and certainly more effective than visiting with a member of Congress in Washington DC.

Has a member of Congress been to your company? Tell us about the visit. Drop us a comment here or send an email to mediaATesopassociation.org with a short re-cap.

Thursday, July 28, 2011

Congressional Hearing Thoughts on DOL Proposed Regulation

The following is a legislative bulletin which was sent to all members of The ESOP Association recently. In our efforts to keep everyone informed, we are sharing the bulletin here on the blog.

Congressional Hearing Confirms DOL Proposal to Make Appraisers of ESOP Stock is Not to Stop “Rogue,” “Fly by Night,” Unqualified Appraisers, but Mainstream ESOP Appraisers, One of Whom Probably Appraises Your ESOP Stock!

On July 26, Assistant Secretary Phyllis Borzi, head of the Department of Labor’s Employee Security Benefits Administration (EBSA), during testimony to the Subcommittee on Health, Employment, Labor, and Pensions of the House Education and Workforce Committee confirmed what The ESOP Association has said from the day the proposed regulation was published:

DOL’s proposal to mandate all appraisers of private ESOP company’s shares are ERISA fiduciaries is NOT just to police rogue, fly by night, unqualified persons performing ESOP appraisals.

During her testimony, in response to a question, Secretary Borzi made clear that she and her agency had found that prominent ESOP appraisers are often using “wrong methodologies” when appraising ESOP stock.

MESSAGE: If the DOL proposal mandating that all ESOP private company appraisers be ERISA fiduciaries as proposed, not only will your company pay more for an appraisal, the chances are high that a DOL audit will deem your ESOP share value to be a violation of ERISA, or such a claim will be made by plaintiff lawyers.

The ESOP community must continue its protests to members of Congress about this DOL proposed regulation.

If your Representative or Senators have already protested, thank her or him again; and ask if they have heard anything from DOL indicating a willingness to alter the proposed regulation. If Senators, ask that they consider cosponsoring the Ayotte et al bill, S. 1232, stopping the DOL regulation in its tracks.

If you have no evidence that your Representative or Senators have contacted the DOL, and you have contacted their offices already, call and ask if you can expect a response. [Dial 202.224.3121, and ask the operator to connect you to the member’s office.]

If you have not yet contacted your Representative or Senators, please considering doing so. Click here for suggested letter that can also be used as a phone script.

Remember: it is your ESOP in the line of fire. Not some weird ESOP outlier company!!!

Wednesday, July 27, 2011

Part IV – To Everyone Who Cares About ESOPs…

PART IV

To Everyone Who Cares About ESOPs…

A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells outthe truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

Myth number four:ESOPs are big business.

Citing NCEO data selectively, the author ignores that 99% of ESOPs are closely held, private businesses, and that probably 90% plus have fewer than 500 employees, thus meeting the definition of small businesses.

It would be a shame if a proposal that hurts one of the best job policies in America is sacrificed to satisfy the desire of some plaintiff law firms to be able to sue more ESOP companies.

You can read the outrageous article by going to BNA’s Pensions and Benefits website. All BNA material is copyrighted and you will have to login and pay to obtain the article. An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you. The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Tuesday, July 26, 2011

Part III – To Everyone Who Cares About ESOPs…

PART III

To Everyone Who Cares About ESOPs…

A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells out the truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

Myth number three:Appraisers can be ERISA fiduciaries and still be independent.

No one, but officials at DOL, think appraisers can be ERISA fiduciaries and still be independent, in conflict with law, and appraisal standards set by the Congressionally sanctioned Appraiser Standards Board [see blog post here].

[In making the claim that appraisers can be independent and be ERISA fiduciaries, the author makes a snarky reference in a footnote to a comment from Dave Fitz-Gerald, an employee owner of ESOP Association member, Carris Reels in Proctor, VT. Guess the author could not fathom that a real live ESOP company executive might be protesting. Dave is President of the Association’s New England Chapter and a member of the Executive Committee of the State and Regional Chapter Council.]

You can read the outrageous article by going to BNA’s Pensions and Benefits website. All BNA material is copyrighted and you will have to login and pay to obtain the article. An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you. The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Monday, July 25, 2011

Part II – To Everyone Who Cares About ESOPs…

PART II

To Everyone Who Cares About ESOPs…

A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells outthe truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

Myth number two: There are many, many flim flam appraisals that will be stopped if the DOL proposal is adopted, and the bad actors will stop cheating employees out of their retirement funds.

The author, which is active in suing ESOP companies — just won a “whopping” $2 million lawsuit against an ESOP company in Arkansas and will split its proceeds with two other firms — blasts The ESOP Association for saying to DOL, “Where is the scandal?” by citing seven lawsuits since 1993 that found the valuation of ESOP shares to be woefully wrong. Let’s see, since 1993 there have probably been around 25,000 appraisals of private company ESOP stock, meaning that the author’s cites have a flim flam in 3/100th of the appraisals. What a scandal! There have been many more malpractice cases against trial lawyers since 1993 than against private ESOP companies.

As side note, the author notes several cases in making her point that this proposed regulation would be in line with current case law and cites seven (Yes, a total of SEVEN cases!); two she cites twice. You would think if this problem of bad valuations was so wide spread, more than seven cases would be used as examples or at least cite a general number to provide a larger scope of the problem.

It seems that the plaintiffs’ lawyers have finally heard what The ESOP Association has been saying from day one about the proposal — it will give the plaintiffs’ firms more business. Isn’t it odd that the author acts like the desire is to give DOL more enforcement power to lower the number of bad ESOPs when if that were true the law firms would have fewer lawsuits to bring. I doubt the law firms hustling to sue ESOP companies really want to eliminate their business opportunities. We think that they doth protest too much.

You can read the outrageous article by going to BNA’s Pensions and Benefits website. All BNA material is copyrighted and you will have to login and pay to obtain the article. An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you. The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Friday, July 22, 2011

Part I – To Everyone Who Cares About ESOPs…

PART I

To Everyone Who Cares About ESOPs…

A recent article written by Nina Wasow, an associate attorney with Lewis, Feinberg, Lee, Renaker & Jackson in Oakland, CA which appeared in a July 12, 2011 issue of Pensions & Benefits Reporter, spells outthe truth about how the DOL proposal to make private ESOP company appraisers ERISA fiduciaries will harm private ESOP companies.

The author unexplainably creates several myths and in a series of blog posts over the next few days, we’ll be examining each. Today:

Myth number one: Protests against DOL’s proposal are the result of the powerful, inside the beltway ESOP lobbying machine compared to the author’s pure desire to help employees.

Give me a break! The powerful ESOP lobbying machine compared to the trial lawyers — note ESOP PAC contributes about $140,000 in a two year election cycle to its true friends on the Hill, while the author’s association, and big law firms contributed $234 million in the last election cycle according to public records obtained by the Center for Responsive Politics.

I have trouble shedding crocodile tears for the poor trial lawyers fighting to save employees from evil ESOP advocates when the trial lawyers probably have more influence with their big donations to Federal office holders than any group in America.

You can read the outrageous article by going to BNA’s Pensions and Benefits website. All BNA material is copyrighted and you will have to login and pay to obtain the article. An ERISA law firm probably has a subscription to Pension & Benefits Reporter, and you can ask for your lawyers to share on a client-attorney basis, or summarize the article for you. The article is in the July 12, 2011 issue, pages 1308 to 1311.

Share your concerns about this article that is circulating on the Hill with staffers who handle ERISA issues with your members of Congress.

Comments? Let’s hear them!

Tuesday, July 12, 2011

Summer Editions of the Advocacy and Congressional Company Visit Kits Now Available

Looking for information on the DOL proposed regulation? Need the most recent pro-ESOP bill and the latest Congressional information? Download a copy of the Advocacy Kit. Want to know how to setup a meeting with your member of Congress? The Congressional Company Visit Kit is what you need.

Summer editions of the Advocacy Kit and Congressional Company Visit Kit are available for download from The ESOP Association’s website. Check under News on the right side of the homepage.

Wednesday, July 06, 2011

DOL Problem: Is Bad Getting Worse?

This article ran as the Washington Report column in the June 2011 issue of the ESOP Report, the newsletter of The ESOP Association.

Maybe this column will sound like a little “fussin,’” but some ESOP advocates still think what the Department of Labor (DOL) is doing with its proposed regulation making all ESOP appraisers fiduciaries is a minor problem that will be handled once the regulation is finalized. It is not a minor problem, and the seeming agenda that the current DOL agency called the Employee Benefits Security Administration (EBSA) has for ESOPs grows darker. At the same time, this agency and its leadership seems to continue to hide what its goals are for its new “attitude” towards ESOPs.

Let’s start with what everyone seems to know: the proposed regulation states that all ESOP appraisers be ERISA fiduciaries. The formal justification set forth by DOL officials, including the Secretary of Labor, is that EBSA had this special task force reviewing ESOP transactions and found that “many” ESOPs were overvalued, and it was the most “common” problem with private company ESOPs. These statements about private company ESOPs have been repeated over and over by DOL officials in the form letters to members of Congress and in interviews with media, and at seminars of ERISA service providers.

We have also seen on several occasions DOL officials say, on the record, that while they are pondering alterations to the proposed regulation’s impact on 401(k) plans and IRAs, the proposed regulation on ESOP appraisers is set, with no changes anticipated.

Both, the citation that there is some kind of nationwide scandal involving private company ESOPs, and that no changes will be made in the proposal’s impact on ESOPs, gave rise to the ESOP community wanting to have the details so the community could assist DOL in proper enforcement. Also to have the regulation be more in sync with what other Federal agencies do to ensure appraisals of non-marketable properties are in accord with professional appraisal standards. So the ESOP community made suggestions for enforcement enhancement, and continued to ask what the definition of “many” is — 5%, 10%, 20%, 50%, etc? DOL has never responded to the offer to cooperate, or to define “many.”

But a letter to a freshman Congressman from Indiana, Todd Rokita (R-IN), from Secretary of Labor Hilda Solis, that was of course written in the office of the Assistant Secretary of Labor for EBSA, gave a hint as to the true agenda of DOL. The letter justified the proposed regulation by citing cases where appraisals were made using valuation theories that candidly are debated among qualified professional appraisers, and under ERISA law can be argued both ways. The letter in several instances cited as an overvaluation an appraisal that took a position on share value in one of these gray areas, that experts debate, that resulted in a higher share value. The letter thus implies that unless the appraiser always gives the lowest value it violates ERISA.

But this letter to Congressman Rokita is not the only piece of evidence of what is the intent of DOL in its campaign against ESOP appraisals. The ESOP Association is hearing report after report that appraisal approaches that have been blessed in DOL and IRS audits of ESOPs for the past 35 years are now being labeled as overvaluation that result in the ESOP being labeled a prohibited transaction. Reports are coming in that a DOL auditor will leave a room to call Washington D.C. DOL offices to learn what the “correct” value should be. In every instance, the D.C. office responds the correct value is always the lower value. In many instances, the ESOP company had an independent outside trustee, and used a very well known appraisal firm with years of ESOP appraisal experience.

Bottom line: If the ESOP community does not stand with people in Congress, such as Senators Ayotte, Snowe, Brown, Collins, and Landrieu who know what the ESOP means in keeping locally controlled jobs that provide good benefits in their states, the ESOP community will be deemed as weak, the number of ESOPs will shrink, and candidly, preserving ESOP tax benefits will be unlikely. The ESOP community cannot afford to abandon its Congressional allies, as it cannot afford to have fewer ESOPs, and thus a smaller voice in the days ahead.

Monday, June 27, 2011

DOL’s Claim that an Appraiser can be an ERISA Fiduciary and still be Independent

At the Department of Labor’s (DOL) public hearings on the anti-ESOP proposal that appraisers of private company ESOP stock automatically be ERISA fiduciaries, DOL top EBSA (Employee Benefits Security Administration) officials scoffed at claims from private sector witnesses that an appraiser could not be independent, and at the same time, be an ERISA fiduciary. Phrases like, “I just don’t get it” were thrown out by DOL leaders at the hearing when this seeming contradiction of being independent and being an ERISA fiduciary was raised.

Well, maybe it’s time for ESOP advocates to say back to the DOL, “We just don’t get it” when “You just don’t get it.”

Congress authorized the Appraisal Standards Board in 1989 as the source of appraisal standards. On June 15, 2011, the Chair of the Appraisal Standards Board wrote to the DOL EBSA saying that there was no way an appraiser could be independent and also be a fiduciary. CLICK HERE to read the letter.

But noted in our blog post – Is the DOL Ignoring the Obama Administration? – the EBSA does not seem to care what the White House and OMB have ordered in terms of promulgating regulations. It is no surprise that ESBA doesn’t really care what a Congressionally authorized group to set appraisal standards thinks either. Guess EBSA top leaders just “don’t get” what the White House and the Appraisal Standards Board say.

If you are dialoguing with your member of Congress about the DOL attack on ESOPs, here is another piece of evidence that what DOL is proposing has no support in rational reading of law, Executive Order, or in current appraiser standards.

Wednesday, June 22, 2011

Senator Kelly Ayotte Introduces Pro-ESOP Bill, S. 1232

We wanted to share the following press release which was sent out by The ESOP Association.

This bill is a response to the Department of Labor’s (DOL) proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries. If the proposed regulation were to be finalized as is, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies open to lawsuits.

“We’re very pleased to see Senator Ayotte take the lead on this issue,” said ESOP Association President, J. Michael Keeling. “The DOL needs to wake up to the fact that private company ESOPs have tremendous positive records of creating jobs that are locally controlled in high performing companies. ESOPs are good for employees, companies, and our communities.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

Because the underlying bill pending on the Senate floor, S. 782 to reauthorize the Public Works and Economic Development Act of 1965, has bogged down and is not likely to be adopted, Senator Kelly Ayotte, and her colleagues Senators Olympia Snowe (R-ME), Susan Collins (R-ME), Scott Brown (R-MA), and Mary Landrieu (D-LA), decided a more effective pathway to stop DOL’s proposed anti-ESOP regulation mandating all private ESOP company appraisers be ERISA fiduciaries, was to take S. AMDT 467 word for word and introduce it as a free standing legislative proposal. It is now S. 1232.

Please consider, and then ask your Senators to co-Sponsor S. 1232. Call 202/224-3121 and ask for your Senators’ offices. Ask to speak to the aid responsible for following tax, labor, or retirement savings law and follow-up with a suggested letter.

If you live in New Hampshire, Maine, Massachusetts, or Louisiana, say thank you to these Senators who are standing up for ESOPs.

Friday, June 17, 2011

Insert ESOPs into Presidential Campaigns

For many years, ESOP advocates have wondered, “How do we get a candidate for President to think about ESOPs, much less endorse ESOPs?”

One clue: DON’T WAIT UNTIL THE FALL OF 2012 AFTER THE TWO MAJOR CANDIDATES ARE PICKED BY THEIR CONVENTIONS.

And here is an example of how to insert ESOPs into the discussion early, especially in the key early primary states such as Iowa — a caucus state — New Hampshire, and South Carolina, to name the first big three.

Recently, a much respected ESOP company, Cirtronics in Milford, New Hampshire, hosted a company visit with former Minnesota Governor Tim Pawlenty. No question the former Governor did not come because he wanted to visit an ESOP company; no question his remarks were a general introduction as to why he should be the candidate for President from the Republican Party. But also no question at all that Cirtronics’ leaders informed him of the company’s ownership structure. In turn, when he talked to the employees and others, he noted that Cirtronics was an example of successful employee ownership. See the links below.

Sure, maybe such remarks do not sound like a big deal, but the fact is that this man who just might be President some day, has had planted in his mind a positive image of ESOPs and employee ownership.

One wins in the advocacy game just like any other game: It is not one thing, one big home run, or Hail Mary pass; but a slow, foundation building effort that grows in the mind of the decision maker at the level of a Presidential campaign, or in the office of the President.

As the primaries unfold in your state, exercise your values in interacting with the candidates you think would be best for America. If there is an interest in the entire field, so be it. Just try to get them out to your ESOP company so they will be exposed to the “truth” about employee ownership through the ESOP model.

Following are a few links to articles about the Cirtronics/Pawlenty visit:

Senator Kelly Ayotte (R) of New Hampshire has proposed an amendment to S. 782 that would amend ERISA to make clear that appraisers of private company ESOP stock are not ERISA fiduciaries. She is joined by Senators Olympia Snowe (R) of Maine and Scott Brown of Massachusetts (R).

Their amendment would stop the DOL proposed regulation mandating all private company ESOP appraisers be ERISA fiduciaries. Briefly, if DOL has its way, all private ESOP companies would pay significantly higher fees for appraisals, there would be extreme confusion over whether the appraiser or the trustee[s] and other current fiduciaries make the decisions about acquisition of shares, and most troubling, would leave private ESOP companies sitting ducks anytime aggressive trial lawyers could find anyone upset over a share value determination. [See The ESOP Association website, and the 12 blog posts, about the harm the DOL proposal will do to the ESOP community if finalized.]

Please call your Senators’ offices, or call and get permission to send an email to the appropriate staff person who works on tax, labor, or retirement savings issues for the Senator, and urge them to be for S. AMDT 467 to S. 782 to reauthorize the Public Works and Economic Development Act of 1965.

Your message is: “I am ______ of (name of company) in (location) and I urge Senator _____ to be for Senator Ayotte’s amendment number 467 to S. 782 to stop a very negative ESOP position being proposed by the Department of Labor.” Call 202/224-3121 and ask for your Senators’ offices.

If you live in New Hampshire, Maine, or Massachusetts, call the offices of Senators Ayotte, Snowe, and Brown and say, “Thank you, thank you!”

If you want direct numbers for your Senators’ offices, go the U.S. Senate, http://www.senate.gov, and click “Find Your Senator” in the upper right hand corner. The U.S. Senate website lists all Senators’ office numbers.

No matter the final handling of the Ayotte amendment, it is extremely important that Senators hear the voice of the ESOP community, and that they are then more committed to making sure the current negative attitude towards ESOPs at DOL is dampened, if not silenced.

Monday, June 06, 2011

Is the DOL Ignoring the Obama Administration?

The Administration is making a big deal over its Executive Order (EO 13563) that supposedly guides Executive Branch agencies to only issue regulations, or to at least use a process in developing regulations, that does not impose harsh burdens on business — especially small businesses. Below is letter that sets forth what we at The ESOP Association consider to be the facts that Department of Labor (DOL), in preparing and issuing the proposed regulation that ESOP appraisers be ERISA fiduciaries, ignored the Executive Order from the White House about how to develop and issue regulations.

We think it’s persuasive to show members of Congress that DOL is thumbing its nose at business, and particularly small businesses, in spite of what is being said by the Administration that it is “business” friendly.

Please feel free to use the information in the letter below in communications with your members of Congress. Thoughts and comments are welcome.

______

May 23, 2011

Mr. Cass R. Sunstein

Administrator

Office of Information and Regulatory Affairs

Executive Office of the President

Office of Management and Budget

Washington, DC 20503

RE: Department of Labor Ignores Executive Order 13563

Dear Administrator Sunstein:

On behalf of the approximately 2,500 members of The ESOP Association, I write setting forth some of the points made in your February 2, 2011, memorandum to the Heads of Executive Department and Agencies, explaining Executive Order 13563 (EO 13563), “Improving Regulations and Regulatory Review.” I do so to contrast its purposes and directions to Executive Agencies to the approach the Department of Labor (DOL) took in proposing a rule to expand the definition of the term “fiduciary” to include appraisers of the stock held in employee stock ownership plans (ESOPs) sponsored by U.S. corporations that are not publicly-traded (referred to as “private” companies, or private ESOP companies.) See 75 Fed Reg. 65263 (Oct. 22, 2010) (referred to as proposed DOL regulation.)

This communication does not repeat the policy critique The ESOP Association has made on the proposed DOL regulation, but to note to you and your colleagues in the Executive Office of the President the obvious inconsistencies of certain provisions of EO 13563 and the process DOL followed in issuing the proposed DOL regulation.

Section 1: Cost Analysis Guidelines

Your February 2nd memorandum reiterates five principles from an earlier Executive Order 12866 in Section 1 of EO 13563 that agencies “use the best available techniques to quantify anticipated present costs as accurately as possible.”

The proposed DOL regulation preamble states the “best” cost analysis as to costs the proposed DOL regulation will impose on private ESOP companies, is based on the assumption professional appraisers charged an average $119 per hour for their work in the past.

$119 per hour is a ridiculous number to use. Any cost analysis based on $119 per hour is not accurate. 98% to 99% of U.S. corporations sponsoring ESOPs are private companies, approximately 92% of these private companies have fewer than 500 employees, and just over 50% have fewer than 100 employees. Thus the majority of U.S. corporations impacted by the proposed DOL regulation with regard to their appraisers becoming ERISA fiduciaries are small businesses, and the costs they will bear if their appraisers are fiduciaries is way more than additional work by appraisers at $119 per hour. While one may submit that the drafters of the proposed DOL regulation were using the $119 per hour rate as an example of the rate years ago, the mere fact DOL did not seek to obtain a more realistic per hour rate to cite is a flaunting of EO 12866 and EO 13563.

Section 2: Seek Input Before Regulation Proposed

Section 2 of EO 13563 “directs agencies, where feasible and appropriate, to seek the views of those who are likely to be affected by rulemaking, even before issuing a notice of proposed rulemaking.” (Underline and italics added for emphasis.)

Private ESOP companies, individually, and in ad hoc groups, and through trade associations, in addition to The ESOP Association, and through individual member organizations of service providers to private ESOP companies, are all well known to DOL personnel in its Employee Benefits Security Administration (EBSA), dating back to the late 70s.

The proposal to mandate private company ESOP appraisers be ERISA fiduciaries was never, ever, discussed by anyone at DOL with any party in the ESOP community.

Section 3: Urges and Instructs Agencies to Co-ordinate

Section 3 of EO 13563 urges Executive Branch agencies to have more “co-ordination across agencies” to produce simplification and harmonization of rules.

In the matter of appraisers valuating shares of private ESOP companies, the IRS has a major responsibility to ensure Internal Revenue Code Section 401(a)(28)(C), which mandates an annual valuation of non-traded company stock in an ESOP be independently valued, or whenever circumstances might have a significant impact on ESOP share value, is adhered to by private ESOP companies. Because the IRS has for many years policed the accuracy of hard to value assets in areas of estate tax, charitable contributions, and ESOPs, the agency has several approaches to ensure appraisals are professionally done, and as accurate as possible.

Section 3 of EO 13563 instructs (note EO 13563 does not “ask,” “encourage,” recommend,” but instructs) agencies (1) to consider the combined effects their regulations… on particular sectors… and (2) to promote coordination across agencies and harmonization of regulatory requirements. Section 3, thus emphasizes the crucial importance of simplifying and harmonizing regulations and acknowledges that, at times, regulated entities might be subject to requirements that, even if individually justified, may have cumulative effects imposing undue, unduly complex, or inconsistent burdens. Section 3 is designed to reduce burdens, redundancy, and conflict, and at the same time to promote predictability, certainty, and innovation.

While no one disputes DOL’s primary role in determining who is an ERISA fiduciary and its primary role in enforcing ERISA’s requirement that a private ESOP company acquire company stock only for fair-market value as determined by an appraiser, common sense says that DOL should follow EO 13563 Section 3’s instructions, and confer with IRS/Treasury officials who have expansive experience with making sure IRC Section 401(a)(28)(C) is complied with by private ESOP companies when their stock is appraised.

There is no evidence DOL personnel have discussed, even briefly, its proposed regulation making appraisers of private ESOP company stock with appropriate IRS/Treasury personnel before drafting and proposing appraisers of private ESOP company stock be ERISA fiduciaries. (Underline added for emphasis.)

The ESOP community has frequent communications with IRS/Treasury personnel.

Section 4 of EO 13563 states that “each agency shall identify and consider regulatory approaches that reduce burdens and maintain flexibility and freedom of choice… Such approaches include “warnings, appropriate default rules, and disclosure requirements…”

Section 4 acknowledges the importance of considering flexible approaches and alterations to mandate… EO 13563 directs agencies to consider the use of tools to promote regulatory goals through actions that are less expensive…

The DOL proposed rule mandating appraisers of private company ESOP stock ignores all of the admonitions of Section 4. The ESOP appraiser mandate ignores the fact other Federal agencies use a variety of approaches to regulate appraisers of non-marketable assets. Particularly instructive are approaches taken by the IRS, which also has responsibility of enforcing ERISA statues and regulations.

1. Using a ridiculous number as the per hour charge by appraisers of private ESOP company stock;

2. Refusing to seek any input from the ESOP community before issuing the proposed regulation;

3. Ignoring input from other Federal agencies on their policies with regard to appraisers of non-marketable assets, particularly the IRS; and

4. Disregarding the less burdensome alternatives to reach its goal of ensuring professional and qualified appraisals of private ESOP company stock tools used by other Federal agencies to ensure appraisers, required under laws and regulations they are responsible for, are professional and qualified.

Your review of this communication is appreciated.

Sincerely yours,

J. Michael Keeling, CAE

President, The ESOP Association

Tuesday, May 24, 2011

DOL’s Goals with Appraiser Proposal Coming into Focus

Ever since last October when the Department of Labor (DOL) proposed a regulation primarily dealing with financial advisors to persons with 401(k) plans, which included a very brief but unexplained recommendation that appraisers of private ESOP company stock be ERISA fiduciaries, the ESOP community has pondered — precisely what was is the DOL seeking in the world of ESOPs.

DOL, in public comments and in letters to members of Congress, has stated “many” ESOP private company stocks are “overvalued” to the detriment of employees participating in the ESOP. ESOP advocates have consistently asked “how many is many?” The answer has always been just “many.”

Recently, in response to written questions submitted by a member of Congress serving on the House committee with jurisdiction over the DOL, the DOL position seems to be coming into focus. And, as the picture becomes clear, it is not getting any prettier, and somewhat belies the broad brushed DOL claim the agency is trying to clamp down on “rouge” appraisers. [The Congressman was Todd Rokita, 4th District Indiana, serving his first term. If you are interested in reading the exchange, please send an email to media@esopassociation.org and a copy will be sent to you. His questions and the DOL response are public record, as they are part of the official transcript of a Congressional hearing.]

What the DOL response indicates is that DOL officials do not agree with some valuation practices which candidly are debated among ESOP appraisers. In fact, the highly respected ESOP Association Advisory Committee on Valuation has written white papers on the topics; and honorable people can disagree what is the “best” valuation position. Specifically, there is a practice in appraising private company stock to add back to the discount for lack of marketability a “control” premium should the ESOP hold more, or is to hold more than 50% of the corporation’s voting stock. Another area discussed among professional appraisers is whether an ESOP company’s repurchase obligation be taken into consideration when valuing shares in a manner that lowers share price.

In other words, it is very reasonable to assume the proposed DOL regulation is not about “rouge, unqualified” appraisers, but a goal by DOL to impose valuation practices they, the DOL officials, think are correct.

Another way to put it: DOL is moving to establish the “details” of what is a correct private ESOP company appraisal as opposed to having the transparency to say, “We do not like the way nearly all ESOPs are valued by appraisers that claim to be good appraisers, who probably do all the appraisals of the ESOP companies who are members of The ESOP Association.”

In sum, victory by the DOL in making appraisers ERISA fiduciaries is not just about reigning in unqualified individuals doing appraisals but about lowering the price an exiting shareholder may get when selling to an ESOP; such a result will mean fewer ESOPs.

Monday, May 02, 2011

The Ohio Employee Ownership Center’s (OEOC) recent magazine issue, Owners at Work, Winter 2011, contains a particularly good opinion piece on the DOL’s proposed regulation to make appraisers fiduciaries. Written by the OEOC’s Program Director, Bill McIntyre, the article is a re-cap of statements and opinions already presented to the DOL and an interesting list of points that are important to the discussion.

You can download and read the Owners at Work Winter issue from the OEOC’s website HERE. Bill McIntyre’s article is on page 14 of the issue.

With many people attending the Association’s Annual Conference in Washington, DC next week and possibly meeting with their members of Congress, we wanted to share this article with members to assist them in their discussions with members of Congress. As we mentioned in an update posted here on April 29 (DOL Campaign: Not Winning: ESOP Community Needs to Be Active) there is still much work to be done on this issue.

Take a look at the OEOC article and our thanks goes out to Bill for his insightful piece.

Friday, April 29, 2011

DOL Campaign: Not Winning: ESOP Community Needs to Be Active

The following is a legislative bulletin which was sent to all members of The ESOP Association recently. In our efforts to keep everyone informed, we are sharing the bulletin here on the blog.

In a recent news article, Assistant Solicitor of DOL, Ted Hauser said, “The Labor Department is set (emphasis added) with its position on valuation firms…” Thus, ESOP voices are not at this time having significant impact on altering the basic position proposed by DOL that all appraisers of private company ESOP stock be ERISA fiduciaries.

Unfortunately, the ESOP issue embedded in the Department of Labor’s proposed new definition of who is an ERISA fiduciary has fallen in importance in the eyes of key members of Congress and the Department of Labor officials.

Why? The DOL proposal also negatively impacts financial institutions administering IRAs, mutual funds offering IRAs, and 401(k) plans, and major financial businesses providing financial advice. Members of Congress of the key committees are justifiably aware the 401(k) market is much, much larger than the ESOP marketplace for those selling services to their plans and many more Americans participate in these plans. (The key committees in this campaign are the House Committees on Education and Workforce; Ways and Means; and Appropriations, and the Senate Committees on Health, Education, Labor, and Pensions; Finance; and Appropriations.)

The fact is these businesses handle trillions of dollars, and have expertly mounted a significant campaign to persuade members of Congress to protest, and to threaten to overturn the DOL proposal as it impacts their interests.

Not surprisingly, key Republican members of Congress have heeded their concerns, and have registered protests to DOL.

Not surprisingly, in this day of sharp partisanship in Congress, Democratic leaders are taking positions contra to their Republican colleagues, and writing to the Secretary of Labor supporting the DOL proposal.

But to the knowledge of The ESOP Association neither Republicans nor Democrats, except for five members, say anything about ESOPs!

The five members of Congress who have conveyed concerns about DOL’s proposal to mandate that an appraiser of private company ESOP stock be fiduciaries are Senators Bernie Sanders (I-VT), and Patrick Leahy (D-VT), Congressmen Maurice Hinchey (D-NY), Charles Boustany (R-LA) and Geoff Davis (R-KY).

Many ESOP advocates have written their Senators and Representatives.

If you can, please let us know what your Senators and/or Representatives have done, as this list of five may be incomplete. No matter when the campaign ends (probably fourth quarter of this year) the ESOP community needs to express appreciation to their elected officials who stood up for ESOPs.

DOL staffers have fanned out to key Congressional offices, making an effective argument to Congressional staff that the ESOP proposal is a minor tweak that will not impact “good” ESOPs and their “qualified” appraisers. (Keep in mind, these DOL staffers would not give our side of the argument about this proposal to members of Congress or their aides.)

2. If you have, call 202-224-3121, ask to speak to the office you contacted, then ask to speak to the staff person responsible for retirement savings policy and/or tax policy; when connected, refer to your communication, and ask politely if the [Senator] [Representative] has had time to review the issue you raised in your communication. If so, has s/he contacted DOL, and if not, ask respectfully that she/he do so, noting you will “check” again in a week or so.

This ESOP community is threatened by the DOL proposal. Since 1974, when threatened, the voice of ESOP advocates has consistently beaten back the threat 80% of the time.

Let’s keep this wining percentage!

Tuesday, April 19, 2011

Pensions & Benefits Reporter, a Bureau of National Affairs publication, ran an article in the March 8, 2011 issue covering the DOL’s March 1st and 2nd hearing on the “Definition of a Fiduciary.” While the article itself didn’t contain any surprises, it did include an interesting table in a sidebar article. The publication went through all 199 DOL comment letters regarding the proposed regulation and looked at the themes present one of which was — would seriously impede ESOPs. Tallying the list in this category found 82 of the 199 submitted comments in agreement that the DOL proposed regulation would harm ESOPs.

“This is a very enlightening insight,” said J. Michael Keeling, president of The ESOP Association. “We have looked at all of the comments letters and knew that many were against the proposed regulation as we are but have not had the opportunity to tally the results. This figure is notable — 41% believe this proposed regulation would harm ESOPs.”

In addition to the category regarding the harmful effects on ESOPs, the chart also included the following: costs outweigh benefits and/or flawed impact analysis, standards too vague and subjective, insufficient coordination with other contemporaneous rulemaking and/or existing guidance or standards, overprotective of sophisticated fiduciaries, covers certain service providers who should be presumptively excluded, exceptions too narrow, and none.

Monday, April 04, 2011

ESOPs Make Appearance at a House Ways and Means Committee Hearing

At the March 3, 2011, hearing on Small Business and Tax Reform, held by the Select Revenue Measures Subcommittee of the House Ways and Means Committee, ESOPs were mentioned at different points in the hearing’s Q& A section and, we are happy to report each mention of ESOPs sponsored by small businesses was positive.

In a year when corporate tax reform is being tossed about at every turn, and this being one of the first major hearings focused specifically on tax reform, it was a positive sign to have members of Congress not only ask about ESOPs, but also to have a witness answer in a positive light. This doesn’t mean that any battle regarding tax reform and ESOP law is over, but it’s nice to know that the message at this hearing was positive.

Having bi-partisan members of the Subcommittee take the time to bring up ESOPs during the hearing is also important to note. Please note Congressman Paulsen and Congressman Neal are both counted among our ESOP advocates on the Association’s website HERE. Additionally, the witness who answered the question — Dr. Robert Carroll, Principal, Qualitative Economics and Statistics, Ernst & Young LLP, Washington, D.C. — is a former President George W. Bush Treasury Department official and to have him sing the praises of ESOPs at a tax hearing is another important fact to keep in mind.

For more information on the hearing, CLICK HERE. On the bottom of the page there is a link to the archived hearing video.

Following are the times of the ESOP mentions and a short paraphrased summary.

NOTE: While watching the archived video, ESOP Association staff had trouble with the video cutting out. It may have to be restarted if this happens.

Witness Dr. Robert Carroll, Principal, Qualitative Economics and Statistics, Ernst & Young LLP, Washington, D.C., answered: he mentioned that ESOPs were good companies and had nice things to say about ESOPs in general but didn’t really answer the pass-through question.

“This bi-partisan declaration of support for employee ownership through the ESOP (employee stock ownership plan) model among privately held companies, especially by the popular S corporation business model, is very impressive,” stated ESOP Association President J. Michael Keeling.

Also endorsing and pledging to work for the passage of H.R. 1244 is the Employee-Owned S Corporations of America or ESCA, http://www.esca.us/.

“ESCA provides a focus in our national policy debate for S corporations sponsoring ESOPs, and the benefits these corporations provide to employee owners. ESCA’s work on this legislation will be important in expanding the number of members of Congress supporting H.R. 1244,” said Keeling.

H.R. 1244 will: 1.) permit owners of S stock to sell the stock to an ESOP and defer the capital gains tax on his/her gain if the proceeds are reinvested in the equities of U.S. operating corporations as owners of C corporations stock have done under IRC 1042 since 1984; 2.) permit lenders to S corporations with 50% or more ownership through an ESOP to exclude 50% of the interest from the loan if used to acquire stock for the ESOP; 3.) establish an office in the Department of Treasury to provide technical assistance to S corporations with ESOPs; 4.) provide that a small business, S or C, eligible for one of the many programs provided by the Small Business Administration to remain eligible for SBA programs if the company becomes owned 50% or more by an ESOP, and the workforce remains the same or nearly the same as before the establishment of the 50% ownership by employees through the ESOP.

The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy. More information – http://www.esopassociation.org/.

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Tuesday, March 15, 2011

ESOP Companies Continue Congressional Meetings

Meeting with your member of Congress is the most effective way to share the value an ESOP can bring to a company. Today we want to highlight two Congressional visits by members of The ESOP Association. Don’t forget, if you would like information on how to setup a Congressional visit download copies of the Advocacy Kit and the Congressional Company Visit Kit from The ESOP Association’s website.

Recently, the employee owners from Douglas Machine (Alexandria, MN) and Allied Builders Systems (Honolulu, HI) met with their respective members of Congress to discuss employee ownership as well as the proposed regulation by the DOL which will harm privately-held ESOP companies. (More information about the DOL’s proposed regulation can be found HERE.)

Gary Oda of Allied Builders Systems met with Senator Daniel K. Inouye (D-HI) and said that he was able to advocate the Association’s, and his company’s position, on the DOL proposed regulation. In an email to the Association, Mr. Oda said: “He was very receptive and indicated his support on the matter. He was very impressed with the impact employee ownership has had on changing the stake in life for people in Hawaii who have had the privilege of owning company stock.”

Andrew Freyholtz and the employee owners of Douglas Machine Inc. had the opportunity to meet with Senator Al Franken (D-MN) at the company’s facility in Minnesota. Mr. Freyholtz had this to say about the event: “The visit went very well and I believe the Senator got a great feel of our business, our people, and our culture. He had a few critical questions at the beginning which gave us a great opportunity to answer some common misconceptions about ESOPs. Then Senator Franken had a chance to meet with numerous employee owners who had a chance to tell him about their ESOP experiences and how their day-to-day responsibilities are impacted by our ownership culture. The Senator and his staff were constantly amazed by our highly technical business, our people, and our success throughout the economic slowdown.”

“Meetings like this are so important to the ESOP cause,” said J. Michael Keeling, president of The ESOP Association. “With the current proposed regulation from the DOL to tax reform, getting out there and meeting with members of Congress and showing them the value of employee ownership first hand is the best thing an ESOP company can do right now to support employee ownership in the U.S.”

Thursday, March 03, 2011

Update on DOL Proposed Rule Negative to ESOP Companies

We wanted to share the following ESOP Legislative Bulletin which was sent to ESOP Association members this morning about the DOL Hearing on the proposed regulation “Definition of a Fiduciary.”

The Department of Labor has concluded its public hearing on its proposal that appraisers of ESOP stock be fiduciaries to the ESOP, in addition to a current ESOP fiduciary.

While I have sat through other sessions where ESOP cynics’ comments made the session a nightmare for an ESOP/employee owner advocate, and while I can report that I found the DOL officials to be respectful of the ESOP concept, I must report there was no indication they would drop their desire to have the appraisers be fiduciaries.

In exchanges with witnesses who were not supportive of the proposed regulation, including the Chair of the Association’s Advisory Committee on Legislative and Regulatory Issues, Laurence Goldberg, the DOL officials put forth several ideas to ameliorate the concerns of ESOP advocates, that primarily were to limit the appraisers’ fiduciary responsibilities, but not to drop their core proposal that appraisers be fiduciaries. Compromises are always welcomed, as no one gets 100% of everything he or she wants.

BUT…..and this is a big but: The DOL officials might claim they only want to make sure valuations are as good as they can be, and they, the DOL enforcement arm, will not expand their current interpretation of when a valuation is wrong; but private sector lawyers do not have to read any final regulation narrowly. In other words, making appraisers fiduciaries will not only result in existing ESOP companies paying more because their appraiser will have to buy fiduciary insurance, for which no one knows the cost as such a policy does not exist for appraisers right now, plus appraisers will probably hire their own “fiduciary” lawyer, and these costs will be paid by the ESOP company, reducing its profits, and reducing benefits to employee owners; but, and here is the but that is so worrisome, there will be many more lawsuits against ESOP companies and the appraisers as now the lawyers will have more pockets to go after.

And again, DOL has not documented its claims that bad valuations of private ESOP companies are widespread and common.

The data is overwhelming: Most lawsuits against ESOP companies for fiduciary violations, of whatever nature, do not succeed. But litigation is so expensive, time consuming, that many companies just settle for an amount less than the cost of winning the lawsuit. A settlement pay day for lawyers’ bringing the law suits makes it worthwhile to find situation where suits may pay off.

What to do?

The fact that the hearings are concluded does not mean the ESOP community stops complaining about this proposal.

Please consider contacting your member of Congress, House and Senate, to protest along the lines of the suggested letter that is linked to this email bulletin. (To download a copy of the sample letter CLICK HERE.) If you have already written, and have heard nothing in return, consider a polite inquiry of how your letter was handled. If your letter resulted in a response, write again to say politely DOL is not budging from its proposal.

Bottom line — higher costs, perhaps prohibitive to ESOP creation and continued operation, is nonsensical coming from the Department of Labor, an agency that is supposedly trying to keep jobs in America, versus their being eliminated, or shipped overseas. Our national ESOP policy is a proven engine for keeping good jobs, providing sizeable retirement benefits in nearly all instances, in high performing workplaces, right now, right here, in America.

Nice, respectful words from the DOL officials at the hearings do not alter the real world, potential impact of what they have proposed. ESOP advocates should not sit by and let the DOL proposal become the law of the land.

Thanks for reading this bulletin.

J. Michael Keeling, CAE

President

The ESOP Association

Thursday, February 17, 2011

2011 Winter Advocacy Kit NOW AVAILABLE

The 2011 Winter Advocacy Kit is now available on The ESOP Association’s website. It can be found under News on the right side of the homepage or in the Government Affairs drop down menu at the top of the page.

Friday, February 04, 2011

President Reagan and Employee Ownership – Once More

In honor of President Ronald Reagan’s 100th birthday, we wanted to re-post the video that features President Reagan talking about employee ownership. As he was the only U.S. President to endorse employee ownership, we thought it would be appropriate to share the video once again.

While many ESOP advocates are not aware of President Reagan’s work for employee ownership and ESOPs, they are among the older group of advocates — i.e. they were voting age in the 80s — and many are skeptical of ESOP Association President Keeling’s citation of President Reagan’s support of ESOPs. Well, as President Reagan would say, the proof is in the pudding.

Below is a link to the 1987 video from the Center for Economic and Social Justice (CESJ), an organization that vigorously advocates for employee ownership, which features President Reagan talking about employee ownership.

The video is about 10 minutes in length and the section about employee ownership is at the four to five minute mark. This particular speech was given in regard to the 1986 Report released by the Presidential Task Force on Project Economic Justice. These remarks were made at the ceremony where President Reagan received the Report on how employee ownership could counter Communism in Central America. The first four minutes are remarks about individual rights and freedom. President Reagan in the last six minutes speaks directly about employee ownership as key to economic justice.

Republican advocates — work to have your Republican leaders watch this video. There is no question that Republicans and their supporters hold President Reagan in extremely high esteem. They should know how he viewed employee ownership, and the ESOP model. His remarks in the first part of the video give the core values of ESOP advocates — that employee ownership honors the individual, puts faith in every human, just as our Declaration of Independence sets forth, and confirms the belief that humankind benefits most through participation in a free enterprise society, primarily if owners.

We have not forgotten the Democrats. Keep at it with your Democratic elected officials — remember, be persistent. They too should know about policies that are designed to lift every man and woman to a participatory role, through ownership, in our economic system.

Tuesday, February 01, 2011

The ESOP Association Submits Comments to the Department of Labor on the Proposed Regulation, “Definition of the Term Fiduciary”

As noted in an earlier post today, below is additional information about The ESOP Association’s comments submitted to the DOL along with links to the comments and letter to members of Congress.

In our efforts to keep Association members apprised of developments regarding the Department of Labor’s (DOL) proposed regulation that would make valuators of ESOP stock fiduciaries of the ESOP trust, we wanted to alert members that The ESOP Association submitted comments to the Department of Labor’s Employee Benefits Security Administration (EBSA). The comments, which were prepared under the direction of the Association’s Advisory Committee on Legislative and Regulatory Issues with input from the Advisory Committee on Valuation, point out several reasons why this regulation would harm private company ESOPs.

Five main points of the comments:

1.) mandating any and all valuators of private company stock be fiduciaries will increase the cost of the valuation substantially;

3.) this regulation will create potential lack of trustee prudent actions if the valuator services provider has an equal fiduciary role as a trustee;

4.) it will confuse the law on trustee decisions; and

5.) it will create a big cost for ESOP companies arising from more private parties suing ESOP companies and their trustees in cases that currently Federal courts dismiss.

If you would like to read a copy of the comments submitted by The ESOP Association, please CLICK HERE.

It was also noted in the comments that the companies that will directly be impacted by this proposed regulation are mainly small businesses that on average have fewer than 500 employees and are not traded on the public stock exchange. Anywhere from 80% to 95% of the ESOPs created are because of an exiting shareholder of the private company that sold his or her stock an ESOP. These companies are proud of the ownership structures they have created, have healthy ESOP account balances, and over 78% of the companies also sponsor another benefit plan in addition to the ESOP. The DOL proposed regulation will harm companies that are providing local jobs and employee owners with significant retirement savings.

We ask that ESOP companies and valuation specialists write their elected officials and express their concerns and respectfully ask that his/her member of Congress consider expressing opposition and/or doubts about the DOL’s attack on private company ESOPs.

Finally, we understand the DOL is working to ensure flim flam plans are uncovered and those responsible are held accountable, but all we ask is that DOL not seek the perfect at the expense of the good.

Noting that many privately-held businesses would be directly impacted by the proposed regulation which would make valuators of ESOP stock fiduciaries of the ESOP trust, the Association stated five reasons that should be considered in the EBSA’s deliberations of the proposed regulation: 1.) mandating any and all valuators of private company stock be fiduciaries will increase the cost of the valuation substantially; 2.) establishing more efficient, less economically burdensome ways to ensure valuations are done properly without reducing ESOP companies’ profits is doable; 3.) creating potential lack of trustee prudent actions if the valuator services provider has an equal fiduciary role as a trustee; 4.) confusing the law on trustee decisions; and 5.) creating a big cost for ESOP companies arising from more private parties suing ESOP companies and their trustees in cases that Federal courts currently dismiss.

“Nearly 91% of corporate members of The ESOP Association are small businesses that have fewer than 500 employees that are not traded on the public stock market. These ESOP companies have pride in their ownership structures and we feel these proposed changes are not in the best interest of average pay employees,” said ESOP Association President J. Michael Keeling. “This proposed regulation will weaken companies providing local jobs; companies that are overwhelmingly furnishing average pay employees with significant retirement savings. We believe the DOL is mistakenly seeking the perfect at the expense of the good.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

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Friday, January 21, 2011

The ESOP Association Submits Comments to House Ways and Means Committee on Tax Reform

We wanted to share the following press release which was sent out by The ESOP Association today.

The ESOP Association Submits Comments to House Ways and Means Committee on Tax Reform

January 21, 2011 (Washington, DC) – On January 20, 2011, The ESOP Association submitted comments to the House Ways and Means Committee which held its first hearing on tax reform. The purpose of the hearing was to examine the Federal income tax code, understand the corporate tax structure, and look at ways to bring the tax code in line with other nations.

“The ESOP Association submitted comments to the Ways and Means Committee to emphasize that the ESOP community appreciates the need for comprehensive tax reform and that the Committee should model its work after the process that led to the 1986 Tax Reform law,” stated Association President, J. Michael Keeling. He also noted that the process the led to the 1986 law was a near four year, deliberative, transparent process permitting all interests to have voice.

A copy of the comments can be found on the Association’s website HERE.

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

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Tuesday, January 04, 2011

NCEO Submits Comments Regarding DOL Proposal

The Department of Labor’s (DOL) overreaching proposal to make ESOP appraisers fiduciaries is a topic we’ve discussed often the last few weeks. We wanted to bring to your attention comments submitted by the National Center for Employee Ownership (NCEO) on the proposal. This is the first time the NCEO, a 501(c)(3), has submitted comments in regard to a DOL proposal. The comments are public record and can be found here.

In addition to filing comments with the DOL, the NCEO’s Corey Rosen also wrote a piece about the proposal that appeared in the December 14, 2010 issue of Pensions & Benefits Reporter which is published by the Bureau of National Affairs (BNA). The BNA does require an account to access articles online. If you have an account, you can find the article here.

As additional information about the DOL proposal becomes available, we will post it here.

2010

Wednesday, December 22, 2010

DOL to Hold Public Hearing on Proposed Rule Mandating Valuators of Private ESOP Companies be Fiduciaries

The Department of Labor’s Employee Benefits Security Administration (DOL EBSA) announced in a press release today that it will hold a public hearing on March 1, 2011 in Washington, D.C. on the proposed rule regarding the definition of a fiduciary, which included mandating all valuators of private company ESOPs be fiduciaries to the ESOPs they valuate. You can find a copy of the proposed rule on the DOL’s website here.

According to the DOL’s press release, a formal notice regarding the hearing will be issued in January 2011. The DOL will not consider requests to testify in advance of the formal notice.

Also noted, the DOL will accept public comments until Feb. 3, 2011. This is two weeks after the close of the Jan. 20, 2011 comment period.

President of The ESOP Association, J. Michael Keeling, noted, “This announcement is positive news. We applaud EBSA’s decision to have an open discussion about its proposal that would impact 98% of the ESOPs in America. Now, we will be able to hear DOL’s concerns explained in full, and we ESOP advocates will be able to voice our thoughts in public.”

Monday, November 29, 2010

Why the Department of Labor’s Proposed Regulation Will Harm Private Company ESOPs Cont…

Background: The proposal reverses 34 years of DOL policy that valuators of ESOP stock are not ESOP fiduciaries.

(Note: this 34 year policy was developed under President Ford, a Republican; continued by DOL under Presidents Carter (Democrat), Reagan (Republican), Bush I (Republican), Clinton (Democrat), and Bush II (Republican). Why now the proposed attack on ESOPs?)

1. The proposal if finalized will significantly increase the costs of establishing and maintaining an ESOP, because valuators will have to purchase fiduciary insurance.

2. The proposal, if finalized, will hinder an ESOP company’s desire to acquire another company, or to expand, or to be acquired, as any person rendering a fairness opinion for an ESOP trustee will be a fiduciary, increasing the cost of the transaction.

3. Many valuation firms may drop their ESOP practice due to exposure to lawsuits, as many trial lawyers who now troll for lawsuits against ESOP public companies, will now have better monetary opportunities with lawsuits against private ESOP companies. (One impact of the proposal, if finalized, is one disgruntled employee can bring a lawsuit against the plan fiduciaries over the valuation.) Less competition among valuation firms doing private ESOP company valuations also mean higher costs, and more hassles finding competent valuation firms.

4. If DOL has evidence, as it claims without data in preamble to proposed regulation, that many private company ESOP shares are wrongly valued, DOL currently has enforcement powers against current ESOP fiduciaries and trustee[s].

5. Finally, the DOL proposal, if finalized, would create a contradiction. Internal Revenue Code § 401(a)(28)(c) mandates the appraiser of private company ESOP stock be independent. If a valuator becomes a fiduciary to the ESOP, s/he per se would not independent!

The DOL proposal is not needed and its real purpose seems to be to hinder creation and operation of private company ESOPs in contradiction of P.L. 94-455, 90 Stat. 1520.

Also below is a link to a brief “talking points” paper on the potential negative impact of the DOL proposal, and a suggested letter to a member of Congress.

Coincidently, the view towards private company ESOPs by the current leadership of the DOL’s Employee Benefits Security Administration is not positive, and the ESOP community should not ignore this attempt to squeeze ESOPs so hard they diminish in number.

To add another reason, which is obvious, and embarrassed not to have included this bullet point in the first communication about the Department of Labor’s (DOL) attack on ESOPs, see below:

Current law mandates that an appraiser of shares of a private company that are to be, or are, ESOP shares be independent (26 U.S. Code 401(a)(28)(c)). In If the DOL proposal to make all ESOP valuators (appraisers) fiduciaries to the ESOP, how could the valuator/appraisers be independent?

In sum, a strong case may be made that DOL’s proposed regulation not only violates current law P.L. 94-455, 90 Stat. 1520 but also 26 USC 401(a)(28)(c)!!

Tuesday, October 19, 2010

Reaction to President Obama’s Comments on ESOPs

This article originally ran as the President’s Page column in the October 2010 issue of the ESOP Report. A copy of the October 2010 issue can be downloaded from the Members Only section of The ESOP Association’s website.

On September 29, 2010, ESOP Association member Tom Roback, Managing Director of Blue Ridge ESOP Associates located in Charlottesville, VA, had the opportunity to dialogue directly with the most powerful person on earth, the President of the United States, about ESOPs. [If you have not read the dialogue, or seen the video, click here.]

Many have conveyed to me their reaction to the President’s comments on ESOPs to Tom, and some ask what my reaction is, or was.

First, I want to thank Tom for taking the initiative to speak up directly for ESOPs to the President of the United States. [As a side bar comment, there are at least two examples since 1975 when the President, not President Obama, was touring and holding an open forum in an ESOP company. The leaders of the companies did not mention, nor did any employee in the audience, mention that the company sponsored employee ownership through an ESOP. Tom did not hesitate to tout ESOPs.]

Second, a broad brushed comment. It should come as no surprise that individuals who are not supporters of President Obama were not impressed with his comments, labeling them as wishy-washy, or cynical. These people, who I would assume did not vote for President Obama, noted that he said it was a “theory” that employees who were owners would work better, and improve the company’s performance. They also note that his first reference was to an ESOP company not helping the employees when share value declined due to poor company performance.

Those, however, who are supporters of President Obama felt his comments indicated that he recognized ESOPs as something that should be “encouraged,” his last sentence to Tom. I assume those making these comments to me probably voted for President Obama.

Well, let me give a reaction I truly feel is neither “for” President Obama, nor “against” as measured by what he thinks of ESOPs.

Before doing so, I will answer some who have said to me they were bothered that Tom spoke of small businesses only. Tom was showing respect to the office of the President, which I think in these times of yelling and shouting on TV has woefully slipped. The session was to talk about small business policy. Those invited knew what the agenda was. Tom respected that agenda, and to start talking about ESOPs and all size businesses would not have been in order.

Now, what do I think about President Obama’s comments on ESOPs? What do I think might foretell what he intends to do with regard to ESOP law in a White House initiative to reform all tax law?

In my view, President Obama expressed exactly the same view of ESOPs that he expressed as a Senator in a 2005 letter to an Illinois constituent who asked that he co-sponsor pro-ESOP legislation introduced by Senator Blanche Lincoln. We read the letter to the Vegas Conference luncheon in 2008, and reprinted it in the August, 2008 issue of the ESOP Report. [All members can access prior newsletters through our website, members only section.]

The letter was interesting in that it says that he, then Senator Obama, believes that ESOPs are here to stay, but he was concerned that if an ESOP company went bankrupt, the employees would not have retirement savings. He then signs off, like many members of Congress do when a constituent writes a letter asking for support of specific legislation, that if Senator Lincoln’s bill comes forward, he will remember the position of the writer. Since Senator Obama was not on the Senate committee with jurisdiction over tax issues, he would not “see” the bill unless that Committee approved it, or provisions of the bill. And believe me, if in a bill from the Senate Finance Committee came to the Senate floor, it would pass the entire Senate.

Here is my speculation, as unlike Tom, I have never had a conversation with President Obama about anything: As a former Illinois State Senator, as he walked and talked in his South Chicago State Senate district, he probably heard an earful from employees of United Airlines after it went belly up post its becoming ESOP owned. And I suspect some of those giving him an earful were flight attendants, who did not want the ESOP, and who did not participate in United’s ESOP in the first place.

At the same time, both as he moved around his State Senate district, and then as he moved around Illinois when he ran for the U.S. Senate, he probably interacted with several of the really good ESOP companies in Illinois, and with employee owners who liked their ESOPs. Thus, he knows that ESOPs are not just headlines in the newspapers, like the one he has probably read about, The Chicago Tribune.

In sum, I do not believe President Obama will be a President Reagan, who led the charge for ESOPs in 1984 and 1986 in partnership with former Senator Russell Long. At the same time, I do not believe he sees ESOPs as an evil policy, or really bad policy that needs to be eliminated. But I do believe that if his staff, or the Treasury staff came forward with proposals to limit ESOP tax incentives, or to change how ESOP companies are governed, he would not out of hand reject these kinds of proposals if made in the name of revenue neutral tax reform, and in an effort to lower C corporation tax rates.

In sum, he would be more or less in the same camp that we had with President Clinton, who both signed the S ESOP law, who dialogued with an employee owner about ESOPs once in his first term, and who tried to trim back S ESOP law.

Finally, you should watch the video instead of just reading the transcript, or listening to the exchange. When the event took place, Tom had informed me he was going to ask President Obama about ESOPs, so I was on the White House website to see and hear. But the White House only did audio from the meeting. The audio left me with some disappointment, as the negative words seemed to stick in my mind. Later, I learned a local Richmond TV station had a video stream of the exchange. Watching, I was comforted, not with a change in my view above, but with what I saw as positive body language as President Obama listened to Tom, and as he commented on ESOPs. The old adage that a picture is worth a thousand words has truth in it.

Thursday, September 02, 2010

Senator Bernard Sanders Holds Vermont Hearing on Employee Ownership

On August 26, 2010, Senator Bernard Sanders (I-VT) held a Congressional hearing in the Vermont Statehouse regarding legislation he introduced in 2009 that would increase employee ownership in America.

The hearing highlighted the following legislation: S. 2909 which would provide state programs to encourage employee ownership and participation in business decision making throughout the United States. The second, S. 2914, would provide for the establishment of the United States Employee Ownership Bank. Both pieces of legislation are pending amendments to H.R. 5297, the Small Business Lending Act, which is awaiting action in the Senate. You can read about the Small Business Lending Act on the Association’s website here. Additional information about Sanders’s legislation can be found here.

Several members of The ESOP Association took part in the hearing including:

If you saw our post of August 30 (White House Task Force Suggests Eliminating ESOP Tax Benefits), then you know what we’re about to say next — telling your ESOP stories is important for keeping and creating jobs in America. Watch these videos by ESOP company executives and advocates talk about why ESOPs can save the economy. Then go out there are tell a few stories of your own, preferably to your member of Congress.

Monday, August 30, 2010

White House Task Force Suggests Eliminating ESOP Tax Benefits

Labels ESOPs as Bad Retirement Plans

Administration’s Reaction Not Known

ESOP Community’s Plan?

STAY ON COURSE!

While not unexpected, given that tax and ERISA experts continue to attack ESOPs — take note that the last three White House/Treasury set of recommendations since 2005 have all recommended eliminating ESOP tax benefits in order to lower the corporate tax rate — it is irritating that the policy of expanding employee ownership through the ESOP model that keeps jobs in America while building wealth for employee owners is ignored by these advisors to the President of the United States.

It is not clear what the impact of the so-called President’s Economic Recovery Advisory Board: The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation, August 2010 will be. It is doubtful that Congress will specifically take up the report’s suggestions, but it will have an influence when Congress takes steps to either increase tax revenues to lower the Federal deficit and/or to lower the corporate tax rate on C corporations.

From The ESOP Association’s vantage point, major overhaul of Federal tax laws has been predicted over the past 15 months for the upcoming next two years.

What are ESOP advocates to do?

Stay the course. The ESOP community has over 100 friends of ESOPs in the current Congress. Our community needs to continue to stay, in a polite and civil way, on the radar screens of these men and women with positive ESOP stories.

With regard to those members of Congress who have no track record of being “for” ESOPs, the ESOP community needs to expose these women and men to positive ESOP stories in their states and Congressional Districts.

The proven fact is: The best defense against attacks on ESOP law is a good offense. We need members of Congress to declare FOR pro-ESOP proposals such as S. 1612 and H.R. 5207. To download “how to” guides, click here for the Advocacy Kit and here for the Congressional Company Visit Kit, and for information on pro-ESOP legislation such as S. 1612 and H.R. 5207.

Keep up with developments and details by reading the ESOP Report, the Employee Ownership Blog, and legislative bulletins from the Association.

Call or email The ESOP Association for immediate answers to any questions you might have.

Our ESOP community must continue to be proactive in persuading members of Congress that it would be foolish to snuff out ESOPs. Clearly, the unelected “experts” do not listen, and/or take the time to learn about the success of employee ownership through ESOPs.

Tuesday, August 10, 2010

Lobbying 401

Yes, 401. It might sound as if we’re skipping a lesson, or lessons, but we’re not. Trust us. Lobbying 401 is all about the finesse, the soft touch, the thank you if you will.

As we all know, people liked to be thanked. When working with members of Congress, it’s an extremely important part of the work that we are all doing to increase knowledge about employee ownership. Although, sometimes it is more than just a small thank you note.

To illustrate, let us tell you a tale…

A member of the New England Chapter of the Association set out to meet with his member of Congress. He’s a charismatic guy and isn’t afraid to speak up when a topic is close to his heart. Luckily for us, employee ownership through an ESOP holds such a place. He decided to attend a town hall meeting where his Senator would be speaking, and at the end of her presentation, stood up and asked her, in front of everyone present, to visit his company. She agreed and put him in touch with the people in her office.

Skip ahead to the Association’s Annual Conference in Washington, DC. He comes to town for the conference and schedules a meeting with his Senator’s office. While he’s meeting with the Senator’s top staff aides, being the outspoken person that he is, he mentions that the Senator has not visited his company yet. He decides that he won’t be taking no for an answer and continues to bring up the topic. By chance, the Senator walks in to the meeting to say hello and he tells her, diplomatically, they were just talking about the visit he mentioned to her earlier in the year. Well, as you can imagine, this small statement creates some tension, but being the charismatic person that he is, smoothes the situation over and a visit is agreed on. A short time later, the visit happens. It’s a success with the Senator being very impressed by the ESOP company.

Later in the summer, the New England Chapter hosts a meeting at the company we just talked about. At that meeting, the Senator’s State Representative reads a note on behalf of the Senator that says she will be co-sponsoring S. 1612 – the ESOP Promotion and Improvement Act of 2009.

A Chapter Officer of the New England Chapter is very pleased with the news and writes a note of thanks to the Senator’s Legislative Aide in DC who in turn shares the email with the Senator. He then gets this letter from the Senator:

If you’re wondering, we’re talking about Shawn Moody of Moody’s Collision Centers, Inc. in Gorham, ME and the David in the letter above is Dave Fitz-Gerald of Carris Reels, Inc. in Proctor, VT. He is the President of the New England Chapter of the Association.

So, this is lobbying 401. It’s all about the relationships. It doesn’t stop after sending a letter. It doesn’t stop after a meeting when in DC for the Annual Conference. It doesn’t stop with a company visit. It doesn’t stop with a Chapter meeting. It doesn’t even stop with the thank you letter. It’s about communication and persistence, that’s lobbying 401.

Tuesday, August 03, 2010

Congressman Dana Rohrabacher (R-CA-46) recently received a letter from the Joint Committee on Taxation estimating the revenue effect of H.R. 692 which he introduced on January 26, 2009. If it becomes law, H.R. 692 will amend the Internal Revenue Code of 1986 to exclude from gross income compensation received by employees consisting of qualified distributions of employer stock. The letter, which is very detailed, discusses several issues of the proposal which will provide special tax treatment for a new category of stock compensation. According to the letter, the Joint Committee on Taxation estimates the proposal would have the following impact on revenue: (All numbers are in billions.)

2011 2012 2013 2014 2015 2016 2017 2018

-0.3 B -0.4 B -0.4 B -0.4 B -0.5 B -0.5 B -0.6 B -0.6 B

2019 2020

-0.7 B -0.8 B

The chart also estimates the revenue impact for 2010-15 which is -2.1 B and for 2010-20 which is -5.2 B.

If you would like a copy of the letter of the Joint Committee on Taxation’s estimation of H.R. 692, please send an email to media AT esopassociation.org with H.R. 692 in the subject line.

Thursday, July 29, 2010

S. 1612 – New Co-Sponsor in the Senate

S. 1612, the ESOP Promotion and Improvement Act of 2010, introduced August 6, 2009 by Senator Blanche. L. Lincoln (D-AR) has a new co-sponsor that we wanted to highlight – Senator Olympia J. Snowe (R-ME).

Senator Snowe serves as a senior member on the two Senate Committees with direct jurisdiction over the provisions of S. 1612: the Senate Committee on Finance, which is the Committee of original jurisdiction over all ESOP tax related causes, and as the Ranking Member of the Senate Committee on Small Business, which has jurisdiction over SBA laws and regulations that impact ESOPs.

Thanks to our New England Chapter members for taking the time to speak with Senator Snowe about ESOPs and employee ownership.

The legislation is the House counterpart to H.R. 5207, the House version of the ESOP Promotion and Improvement Act which was introduced May 5, 2010 by Congressman Charles W. Boustany, Jr. (R-LA-7) and Congressman Earl Pomeroy (D-ND-ATL).

For additional information about S. 1612 visit The ESOP Association’s website, http://www.esopassociation.org, and click on the Government Affairs link on the top of the homepage.

The legislation is the House counterpart to S. 1612, the Senate version of the ESOP Promotion and Improvement Act of 2009 which was introduced by Senator Blanche L. Lincoln (D-AR) on August 6, 2009. We’ll be posting a new co-sponsors list for S. 1612 later in the week.

For additional information about H.R. 5207 visit The ESOP Association’s website, http://www.esopassociation.org, and click on the Government Affairs link on the top of the homepage. Information about the bill can also be found on page one of the May 2010 issue of the ESOP Report and on the Employee Ownership blog.

Thursday, July 01, 2010

Pro-Employee Ownership Proposals Pending on Senate Floor

This information was sent out to all ESOP Association members earlier today but we wanted to share it with readers on the blog as well.

Senators Bernard Sanders (I-VT), Patrick Leahy (D-VT), and Sherrod Brown (D-OH) have filed pro-employee amendments to H.R. 5297, the Small Business Lending Act. One amendment would establish an initiative to promote employee ownership at the Department of Labor; the other amendment would establish a loan guarantee program at the Department of Treasury to help finance certain ESOP transactions. To read the amendments, please click on the following amendment numbers: S. AMDT 4439 and S. AMDT 4440.

Below the text of this email, please find talking points supporting the argument for the bill.

Please consider calling, faxing, or emailing your two Senators requesting they support and vote for the Sanders-Leahy-Brown amendments S. AMDT 4439 and S. AMDT 4440 to H.R. 5297. Ask your message be given to the staff aide to the Senator who handles tax and/or small business issues. Just the simple request is enough to register a pro-ESOP position, and dialogue with the aide is not necessary unless the person described calls back. In any detailed conversation you can refer the staffer to personnel at The ESOP Association or to Warren Gunnels who works for Senator Sanders who drafted these proposals. Again, following is a general argument for the proposals.

H.R. 5297 will be considered by the full Senate sometime after July 13th.

Thank you,

The ESOP Association

SUPPORT EMPLOYEE OWNERSHIP AND PARTICIPATION AMENDMENTS TO SAVE JOBS AND SUPPORT WORKERS

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During the consideration of the Small Business Lending Act, Senators Sanders, Sherrod Brown, and Leahy will file two amendments aimed at increasing jobs through an expansion in employee ownership.

The first amendment (S.AMDT 4439), the Worker Ownership, Readiness and Knowledge (WORK) Act, would create an Employee Ownership and Participation Initiative within the Department of Labor. This initiative would promote employee ownership and employee participation in company decision making by providing education and outreach, training, grants, and technical support for local programs dedicated to the promotion of employee ownership and participation.

The second amendment (S.AMDT 4440) would create the U.S. Employee Ownership Bank to provide loans and loan guarantees to employees to purchase a business through an ESOP or a worker owned cooperative. The federal government currently provides a wide variety of federal loans, loan guarantees and other technical assistance to American companies as a way to increase U.S. jobs through exports. Providing federal loans and loan guarantees for the expansion of employee ownership would increase and retain jobs in the U.S. and strengthen the U.S. economy.

Since December 2007, employment has fallen by over 7 million, and the unemployment rate has nearly doubled to 9.7%. Although many jobs have been lost to deteriorating domestic economic conditions, many others have been shipped offshore. One way to reverse these economic trends is to provide employees with the tools they need to own their own businesses through employee stock ownership plans (ESOPs) or eligible worker owned cooperatives. Employee ownership is often the necessary component that will keep a hard-pressed business from either shutting down, or shipping its jobs overseas.

Who benefits from these employee ownership amendments?

* The Economy, in which many businesses which otherwise would close down or ship jobs overseas stay open and keep their American employees

* Retiring Small Business Owners, who find buyers for their business and compensation for their years of hard work;

* Employees, who retain their jobs, share in future profits, and have greater control over their own vocation;

* Company Performance, which often is improved through increases in productivity due to employee ownership and participation; and

* The Community, in which the company is now more deeply rooted.

By expanding employee ownership and participation, these amendments would create stronger American companies, prevent job loss, and improve working conditions for struggling employees.

Tuesday, June 22, 2010

PA/DE Chapter Hosts Congressional Visit

On April 14, 2010, the PA/DE Chapter of The ESOP Association hosted a meeting with representatives from the offices of Congressman Jim Gerlach (R-PA-6) and Congresswoman Allyson Y. Schwartz (D-PA-13). Roseline Marston, president of A.D. Marble & Co., Inc., located in Conshohocken, PA, hosted the meeting for the Chapter event.

Tuesday, June 08, 2010

30/100

The following post ran in the May 2010 issue of the ESOP Report as the Washington Report.

What does 30/100 mean?

While it is never possible to predict success in the legislative process, primarily because there is no final victory nor defeat, these two numbers represent what it would take to have all, or some of the provisions of pro-ESOP legislation pending in the House of Representatives become law.

Thirty represents the number of men and women who serve on the House Ways and Means Committee that need to be co-sponsors of pro-ESOP legislation for pro-ESOP proposals to be adopted by the Ways and Means Committee, which is the House committee with jurisdiction over tax legislation. [Please keep in mind that historically what the House Ways and Means Committee adopts as tax law changes usually represents anywhere from 70 to 80% of what is in a tax law signed by a President, and that the Ways and Means Committee 90% of the time is the House Committee considering ESOP law, for changes, good or bad.]

One might say, “How come 30, as there are 41 members on the Committee, and isn’t the number 21 the majority?” No, 21 is not the number, as a study of how the Ways and Means Committee adopts tax law provisions that are not on the front page of leading newspapers, or a key topic in a shouting fest on cable news, demonstrates that to have a new, positive tax law adopted that a group is interested in takes a super majority almost bordering on consensus.

As a rule, decisions about what will be considered in any bill by a Congressional Committee is a done deal before the Committee formally sits down in a public session to vote on pending legislation and amendments thereto. The real decisions are made in one-on-one conversations between the Chair and key members, and/or in a “members only” meeting of members who are in the same party.

To be specific, there are 26 Democrats on Ways and Means, and 15 Republicans in this Congress, the 111th Congress of the United States. The Chair of Ways and Means will collect from each of his members, or have his staff tell him what his members have indicated an interest in — and the key element here is what bills have the members sponsored or co-sponsored? The ranking, or number one Republican, member of Ways and Means will be doing the same with his members.

Having four or five members, of either party, or a mixture thereof, will not impress the Chair or ranking Republican. Even 21 is marginal as not every idea to reduce taxes, or each idea to increase taxes, will rise or fall on 21 members expressing a view.

But, ah, 30 is nearly 75% of the members of the Committee. No Committee Chair will defy 75% of his or her members.

There are three pro-ESOP bills pending in the House Ways and Means Committee as of this writing: H.R. 5207, the ESOP Promotion and Improvement Act of 2010; H.R. 3586, the S Corporation ESOP Promotion and Expansion Act of 2009; and H. Con. Res. 204, Expressing the House of Representatives’ Continued Support for Employee Stock Ownership Plans.

Right now, nine members of Ways and Means support one, or two, of the three pieces of legislation mentioned above.

Twenty-one more co-sponsors are needed.

What about the number 100? One hundred represents the total number of members of the House of Representatives who are not members of Ways and Means who should co-sponsor the pro-ESOP bills. Why? One hundred is sort of a threshold number that any chair of a committee would recognize that to defy the interests of approximately 25% of the members of the House who are not members of his Committee would be risky if he expects overall support for bills he brings to the House floor. Plus, the 100 co-sponsor sentiments can overcome the fact that only five to ten members of the Committee support an initiative, as those men and women can say, legitimately, “Look, many members of the House favor our position on ESOPs, and you cannot defy us and them with an anti-ESOP position, or by refusing to promote laws to aid ESOP creation and operation.”

Right now, 34 members of the House co-sponsor one, or two, of the three pieces of legislation mentioned above.

Sixty-six more are needed.

So the 30/100 is right now 21/66. Can the ESOP community reach these goals before Congress quits in the fourth quarter of this year? We have before.

Friday, June 04, 2010

Federalizing K Plans

A recent column in the ESOP Report talked about how ERISA policy germinated in our nation’s capital. (You can read the full President’s Page column in the May 2010 issue of the newsletter, page 2. The newsletter is located in the members only section of the Association’s website.)

One point made by Association President Keeling in the column was that during the first half of 2009, there was rumblings from certain experts in retirement savings policy — both in government, academia, and think tanks — that perhaps 401(k) plans should be “Federalized” in order to protect people’s retirement savings from the volatility of equity investments as the public stock market hit all time lows first quarter of 2009. While this talk eased a bit as the market recovered, recent dips in the market seem to have revived “Federalization” talk in the windowless offices of ERISA experts.

Such discussions triggered a letter from 14 Republican members of Congress, including several strong ESOP champions, to the Secretary of the Treasury Timothy Geithner, and the Secretary of Labor Hilda Solis, putting forth concerns that the implications that the Administration wanted to mandate annuities as the form of distributions from defined contribution plans was perhaps intended to be the move to have 401(k) plans come under Federal agency control.

Secretary Geithner responded on May 14 with a letter which basically said “Not true, not true, not true,” denying vehemently that a desire to collect opinions on distributions from defined contribution plans by the Administration’s agencies responsible for regulating ERISA did not evidence a move to take k plans out of employers’ hands.

If you’re interested in reading the letter, send us an email – media AT esopassociation.org.

In this corner sounding an alarm is not wrong, particularly when there is knowledge of private conversations that do not jive with the “official” explanation. And when the alarm triggers clear cut denials of impending changes, good was done.

Monday, May 17, 2010

H.R. 5207 Finds Co-Sponsors in the House

Within a few days of the May 5, 2010 introduction of H.R. 5207, four more members of the U.S. House of Representatives joined the bi-partisan pro-ESOP proposal introduced by Congressman Earl Pomeroy (D-ND-ATL) and Congressman Charles W. Boustany, Jr. (R-LA-7). They are:

These Congressmen joined as a direct result of grassroots advocacy by the California/Western States, Pennsylvania/Delaware, and Ohio/Kentucky Chapters of the Association, and the members of these Chapters.

A goal of 100 co-sponsors would be nice, including 30 members of the House Ways and Means Committee.

May 12, 2010 (Washington, DC) – On May 12, 2010, Congressman Charles W. Boustany, Jr. (R-LA-7th) and Congressman Earl Pomeroy (D-ND-ATL) announced the introduction of the ESOP Promotion and Improvement Act of 2010. The bill is an important step to broaden employee ownership in the U.S.

In summary, the proposed Act improves the 1042 ESOP tax deferred rollover provisions by permitting sellers to the ESOP of an S corporation to utilize the ESOP tax benefit referred to as the tax deferred rollover, or the so-called 1042 treatment. The bill also makes needed clarifications and technical amendments to the section 1042 provision related to how proceeds from a sale to an ESOP may be reinvested, and who are not permitted to participate in a 1042 ESOP. H.R. 5207 would clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax and would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, that are passed through to ESOP participants in cash. H.R. 5207 would eliminate a bias against majority owned ESOP companies by making clear that a non-ESOP small businesses currently eligible for any Small Business Administration program is still eligible for the SBA program if becoming a majority owned ESOP company with the same characteristics it had before becoming a majority owned ESOP company. (A majority owned ESOP company is 50% plus owned by the ESOP on behalf of the employees.)

“Employee stock ownership plans help workers take ownership in their company, which is part of the American dream,” said Congressman Boustany. “ESOPs continue to be a critical component of improving American competitiveness and helping to create jobs here at home, and this bill improves options for employees to participate in these plans.”

“Businesses that follow the path of employee ownership are often more successful and provide better services, and ownership can make them more exciting places to work. There’s no better example of that than some of the great companies we have in North Dakota like Border States Electric and Dakota Supply Group,” Congressman Pomeroy said. “The federal tax system needs to encourage employee ownership, not stymie it. Our bill will finally set this system on a path of growth.”

“As members of the House Ways and Means Committee, there could be no better proponents in Congress for equitable ownership polices for all working Americans than Congressman Boustany and Congressman Pomeroy,” stated J. Michael Keeling, president of The ESOP Association. “The ESOP community appreciates their recognition of employee stock ownership plans and the need to make them stronger for employee owners across America.”

The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

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Thursday, May 06, 2010

Legislative Highlight — H.R. 692

H.R. 692, which will amend the Internal Revenue Code of 1986 to exclude from gross income compensation received by employees consisting of qualified distributions of employer stock, was introduced in the House of Representatives on January 26, 2009 by Representative Dana Rohrabacher [R-CA-46]

H.R. 692 is co-sponsored by the following Representatives:

Representative Walter B. Jones, Jr. [R-NC-3]

Representative Ron Paul [R-TX-14]

H.R. 692 Summary:

H.R. 692 would exempt from tax the value of company stock paid directly to an employee if the employee holds the stock for at least 10 years. This proposal would be most suitable for a publicly traded company. As such, H.R. 692 is the first to encourage employee ownership in a publicly traded company over the 2001 law. The 2001 law expanded the federal tax deduction for dividends paid on ESOP stock to permit a deduction for dividends reinvested by the employee back to the plan to acquire more company stock.

H.R. 692 Status:

The bill was read twice and referred to the House Committee on Ways and Means.

Importance of H.R. 692 to ESOP Community: H.R. 692, which is not an ESOP bill, would be a major step for large employers to make employees owners.

Wednesday, May 05, 2010

Legislative Highlight — H.R. 3586

H.R. 3586, the S Corporation ESOP Promotion and Expansion Act of 2009, was introduced in the House of Representatives on September 16, 2009 by Representative Ron Kind [D-WI-3].

H.R. 3586 is co-sponsored by the following Representatives:

Representative Earl Blumenauer [D-OR-3]

Representative Steve Driehaus [D-OH-1]

Representative Barney Frank [D-MA-4]

Representative Bob Goodlatte [R-VA-6]

Representative James L. Oberstar [D-MN-8]

Representative Bill Pascrell, Jr. [D-NJ-8]

Representative Erik Paulsen [R-MN-3]

Representative Gary C. Peters [D-MI-9]

Representative Collins C. Peterson [D-MN-7]

Representative Jared Polis [D-CO-2]

Representative Jean Schmidt [R-OH-2]

Representative Lee Terry [R-NE-2]

Representative Patrick J. Tiberi [R-OH-12]

Representative Timothy J. Walz [D-MN-1]

H.R. 3586 Summary:

In general, the bill would: permit owners of S stock to sell their stock to an ESOP under the same treatment C stock of a private company receives under Internal Revenue Code (IRC) Section 1042, also known as the ESOP cap gains deferred rollover provision; permit a lender to S corporations to exclude 50% of its interest income if the loan is used for a qualified employer securities loan, modeled after former IRC Section 133; permit an S ESOP to assume the estate tax liability of an estate if S stock of equal value is transferred to the S corporation ESOP; and establish a Federal program in the Department of Labor to encourage S ESOP creation.

H.R. 3586 Status:

The bill was read twice and referred to the Subcommittee on Health, Employment, Labor, and Pensions.

Importance of H.R. 3586 to ESOP Community: In particular, as S. 1612 permits sellers of S stock to an ESOP to utilize the IRC 1042 deferral of gains scheme, this bill would lead to the creation of more S ESOPs, particularly minority S ESOPs.

Tuesday, May 04, 2010

Legislative Highlight — House Concurrent Resolution 204

H. Con. Res. 204, which expresses continued support for employee stock ownership plans, was introduced in the House of Representatives on October 22, 2009, by Representative Maurice Hinchey [D-NY].

H. Con. Res 204 is co-sponsored by the following Representatives:

Representative Eric Cantor [R-VA-7]

Representative Howard Coble [R-NC-6]

Representative Joe Courtney [D-CT-2]

Representative Walter B. Jones, Jr. [R-NC-3]

Representative Earl Pomeroy [D-ND-at large]

Representative Bill Posey [R-FL-15]

Representative Dana Rohrabacher [R-CA-46]

Representative Peter J. Roskam [R-IL-6]

Representative Edward R. Royce [R-CA-40]

Representative Mark E. Souder [R-IN-3]

H. Con. Res 204 Summary:

Expresses continued support for employee stock ownership plans.

Whereas in the Employee Retirement Income Security Act of 1974, Congress codified a technique of corporate finance which utilizes employee stock ownership, officially named an employee stock ownership plan (ESOP);

Whereas in the 35 years since the statutory recognition of ESOPs, there have been ample data collected by objective research indicating that the vast majority of corporations sponsoring employee stock ownership through ESOPs are high performing companies that, among other indicia of high performing companies, have better sales, are more sustainable, pay better, and provide more retirement savings compared to similar companies that are not employee-owned; and

Whereas Congress, in more than 15 laws since 1974, has made it explicit that ESOPs are to serve the dual purpose of providing retirement savings and stock ownership for employees, as well as being a financing technique for corporations: Now, therefore, be it resolved by the House of Representatives (the Senate concurring), that Congress expresses its continued support for employee stock ownership plans.

H. Con. Res 204 Status:

The bill was read twice and referred to the House Committee on Education and Labor.

Importance of H. Con. Res. 204 to ESOP Community: If more House members would co-sponsor this resolution, it would be a strong message to the Administration and the House leadership not to dismantle ESOP tax incentives in order to raise revenue.

Monday, May 03, 2010

Congressional Listing Available for Members of The ESOP Association

Did you know that you can get a Congressional contact list from The ESOP Association? By request, the Association will send by email a PDF listing of all members of the 111th Congress. If you are an Association member and would like to request a copy, please send an email to media@esopassociation.org.

Thursday, April 29, 2010

Legislative Highlight — S. 2909

S. 2909, the WORK Act, was introduced in the Senate on December 18, 2009 by Senator Bernard Sanders [I-VT].

S. 2909 is co-sponsored by the following Senators:

Senator Sherrod Brown (D-OH)

Senator Patrick J. Leahy (D-VT)

Senator Blanche L. Lincoln (D-AR)

Senator Robert Menendez (D-NJ)

S. 2909 Summary:

S. 2909 would provide State programs to encourage employee ownership and participation in business decisionmaking throughout the United States.

The program would encourage new and existing programs within the States that focus on — (1.) providing education and outreach to inform employees and employers about the possibilities and benefits of employee ownership, business ownership succession planning, and employee participation in business decisionmaking, including providing information about financial education, employee teams, open-book management, and other tools that enable employees to share ideas and information about how their businesses can succeed; (2.) providing technical assistance to assist employee efforts to become business owners, to enable employers and employees to explore and assess the feasibility of transferring full or partial ownership to employees, and to encourage employees and employers to start new employee-owned businesses; (3.) training employees and employers with respect to methods of employee participation in open-book management, work teams, committees, and other approaches for seeking greater employee input; and (4.) training other entities to apply for funding under this section, to establish new programs, and to carry out program activities.

Grants will also be part of the program which may include (1.) Education and outreach; (2.) Technical assistance; (3.) Training activities for employees and employers; (4.) Activities facilitating cooperation among employee-owned firms.

S. 2909 Status:

The bill was read twice and referred to the Committee on Health, Education, Labor, and Pensions.

Importance of S. 2909 to the ESOP Community:

There is evidence that a focus on employee ownership by non-profits leads to more and more successful ESOPs. There are several reasons for this fact, such as more networking among ESOP company leaders, more communications between employee owners of the state’s ESOP companies, and easily obtained financial assistance necessary to establish an ESOP.

Wednesday, April 28, 2010

Legislative Highlight — S. 2914

S. 2914, the United States Employee Ownership Bank Act, was introduced in the Senate on December 18, 2009 by Senator Bernard Sanders [I-VT].

S. 2914 is co-sponsored by the following Senators:

Senator Sherrod Brown (D-OH)

Senator Patrick J. Leahy (D-VT)

Senator Robert Menendez (D-NJ)

S. 2914 Summary:

S. 2914 would establish the United States Employee Ownership Bank, to foster increased employee ownership of United States companies and greater employee participation in company decision making throughout the United States.

The Bank would be authorized to provide loans, on a direct or guaranteed basis, which may be subordinated to the interests of all other creditors — (1.) to purchase a company through an employee stock ownership plan or an eligible worker-owned cooperative, which shall be at least 51 percent employee owned, or will become at least 51 percent employee owned as a result of financial assistance from the Bank; (2.) to allow a company that is less than 51 percent employee owned to become at least 51 percent employee owned; (3.) to allow a company that is already at least 51 percent employee owned to increase the level of employee ownership at the company; and (4.) to allow a company that is already at least 51 percent employee owned to expand operations and increase or preserve employment.

S. 2914 Status:

The bill was read twice and referred to the Committee on Banking, Housing, and Urban Affairs.

Importance of S. 2914 to ESOP Community: Again, the legislation enables the ESOP community to identify friends of ESOPs.

Specifically, state progress, such as Ohio and Vermont Ownership Centers, are helping new ESOPs get financed and helping existing ESOPs to perform better. And, too often, jobs are lost because a business is being shut down, and traditional financing for an employee buy-out is not available. A federal lending program would close the gap.

Tuesday, April 27, 2010

Legislative Highlight — S. 1612

S. 1612, the Employee Stock Ownership Plan Promotion and Improvement Act of 2009, was introduced in the Senate on August 6, 2009 by Senator Blanche Lincoln [D-AR].

S. 1612 is co-sponsored by the following Senators:

Senator Maria Cantwell (D-WA)

Senator Saxby Chambliss (R-GA)

Senator Mike Crapo (R-ID)

Senator Johnny Isakson (R-GA)

Senator Mary L. Landrieu (D-LA)

Senator Patrick J. Leahy (D-VT)

Senator Bernard Sanders (I-VT)

Senator Sheldon Whitehouse (D-RI)

S. 1612 Summary:

One, S. 1612 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, placed on the distributions from current earnings that are passed through to ESOP participants in cash.

Two, S.1612 would clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax.

Three, S. 1612 improves the 1042 ESOP tax deferred rollover provisions by (a.) permitting sellers to the ESOP of an S corporation to utilize the ESOP tax benefit referred to as the tax deferred rollover, or the so-called 1042 treatment; (b.) permitting proceeds received from a 1042 transaction to be reinvested in mutual funds consisting of operating U.S. corporation securities; and (c.) redefining what is a 25% owner, for purposes of IRC 1042, as a 25% owner or more of voting stock, or 25% owner or more of all stock of the corporation, instead of current law definition that owning of 25% of any class of stock is a 25% owner for purposes of IRC 1042.

And, four, S. 1612 would eliminate a bias against majority owned ESOP companies by making clear that a non-ESOP small businesses currently eligible for any Small Business Administration program is still eligible for the SBA program if becoming a majority owned ESOP company with the same characteristics it had before if it becomes a majority owned ESOP company. (A majority owned ESOP company is 50% plus owned by the ESOP on behalf of the employees.)

S. 1612 Status:

The bill was read twice and referred to the Senate Committee on Finance.

Importance of S. 1612 to ESOP Community: Like all pro-ESOP bills, a primary strategic reason S. 1612 is important to the ESOP community is that it is a tool that identifies who in Congress will be for ESOPs, by opposing negative ESOP proposals, as well as, supporting new, good ESOP laws.

Specifically the 10% early withdrawal tax in passing through S dividends to ESOP participants results in an S ESOP having little cash flow enhancements for less than 100% ESOPs. In addition, where the ESOP is just one of multiple shareholders, distributions to pay tax to the non-ESOP shareholders that remain in the ESOP, literally transfers the ESOP status, as cash becomes more than the value of the ESOP stock.

It is important to permit sellers of S stock to take advantage of code section 1042, as there continues to be a waste of resources in conversion of a C to S to enable 1042 treatment.

And it is very wrong to deny a small business owned by an ESOP to be denied SBA status and preferences. This unjustified SBA position often results in a small business with SBA preference losing that preference if ownership is transferred to the ESOP.

Monday, April 26, 2010

Get Your Legislative Fix Here

With the 33rd Annual Conference approaching (May 12 & 13, 2010 – you can find more info here), we thought it would be a good time for a legislative re-cap/refresher, whatever you want to call.

Over the next two weeks, we’ll be highlighting pro-ESOP legislation in the House and Senate along with some other tidbits that we think you might find helpful if you’re planning to visit your member of Congress while in Washington, DC for the Association’s Annual Conference.

We’re in the process of updating the Advocacy Kit and Congressional Company Visit Kit and will have that information up on The ESOP Association’s website soon. Copies will also be available at the Conference. Visit the Membership Services Booth to pick up a Kit.

Thursday, April 22, 2010

Do you know the ESOP Advocates?

Do you know if your member of Congress supports ESOPs and employee ownership? Take a look at the list below. These members of Congress were ESOP champions in recent Congresses as sponsors and co-sponsors of pro-employee ownership legislation, and who will serve in the 111th Congress. We know that many ESOP Association members who will be attending the 33rd Annual Conference in Washington, DC on May 12 & 13, 2010, will be scheduling visits with their members of Congress. Now is the time to see if your member is a supporter. If not, a visit is in order.

If you would like additional information about a particular member of Congress, visit the US. House of Representatives, http://www.house.gov/, and the US Senate, http://www.senate.gov/. You can find your Representative by entering your zip code on the House site in the upper left corner and you can find your Senators by clicking on your state name in the upper left corner of the page.

Tuesday, April 20, 2010

Best Practices in Advocacy

The following post ran in the March 2010 issue of the ESOP Report as the Washington Report. With the approach of The ESOP Association’s Annual Conference in Washington, DC, we know many attendees will be visiting members of Congress and thought it would be a good reminder and refresher.

Often people assume that advocacy for a cause, or an issue, such as ESOP law and employee ownership, with elected officials has some mysterious, or even nefarious, secrets. There is no question that the media likes to portray such a picture, and even hired lobbyists in D.C. add to the aura, that “common” folks can’t influence members of Congress.

Once this myth is discarded, then one can focus on the “best” practices in getting the ESOP message to decision makers in D.C. that leads to the decision makers voting for, and promoting, positive ESOP laws.

Before laying out the “best” practices two points need to be made. A tactic being a “best” practice does not mean “good” tactics are to be discarded — only “bad” tactics are to be avoided, not “good” tactics. There is a popular saying these days that the “perfect” should not be an enemy of the “good.” This is a meaningful statement.

The second point is that “persuading” anyone, be it your next door neighbor, a business owner thinking of exiting her/his business, or a member of Congress, is a “marketing” task that adheres to the best practices of selling, or marketing any product. The best preparation for marketing ESOP laws and policies is to be as faithful as possible to the teachings laid out in the famous book How to Win Friends & Influence People, by Dale Carnegie. People forget that Mr. Carnegie was not writing a book primarily for CEOs, or leaders of government, the military, or non-profits; he was writing to help salespeople, during the depression years of the 1930s, market their product. For example, one key point: if a person is going to be a successful salesperson, s/he has to believe sincerely in the product to be sold. To successfully persuade a decision maker to be pro-ESOP, the persuader has to believe sincerely in the value of employee ownership for America — locally and nationally.

Once the ESOP advocate understands that marketing the ESOP message is similar to selling, the question becomes what is the “best” practice for picking a location to present the message.

It is generally accepted that “demonstrating” the product is the best method to sell a product.

So what better way to sell the ESOP message than demonstrating the power of employee ownership, which means exposing the ESOP company and its employees to a decision maker by having the decision maker see, feel, and dialogue with people in the ESOP company at the location of the company? There is no better way.

But this “how to” column promised not to ignore good practices for selling the ESOP message if the best practice is not doable.

The first good practice on the list would be a delegation of ESOP proponents meeting with the decision maker in her or his local office — a member of the U.S. House of Representative calls such an office the district office, and a member of the U.S. Senate calls such an office the state office.

The next in line would be to have a decision maker’s staff person based in the Congressional district or state see the ESOP company first hand, with an invitation that the member of Congress stop by when possible.

Next in line would be the ESOP advocate from the House of Representative’s district, of the state of a U.S. Senator, stopping by that person’s Washington D.C. office. While many people believe that “seeing” a member of Congress where she or he makes voting decisions, i.e. Washington D.C., is the best practice in lobbying, it is not, as back home what a member of Congress values most is on display — voters — and back home the member of Congress is not surrounded by numerous aides, and a whole slew of other people “selling” their product in the office, waiting in line as it were, to see their Congressperson.

But perhaps most important for the ESOP salesperson is to remember — few products are sold on the first sales call, and to have a customer for more than one purchase, the customer has to be “cultivated” with more than one visit, one letter, one phone call, and so on. The D.C. visit can lead to a company visit; a company visit should be supplemented with future contacts — thank you letter, drop bys when in D.C., telephone call, learning names of key staff persons, showing up at a town hall meeting, but not to yell and scream for goodness sake. [How many salespeople make sales yelling at the person they wish to persuade to buy their product.]

Also, remember, the Association’s web site has all the tools you need to make the case for ESOPs — company visit materials, advocacy kit, and the latest on the pro-ESOP agenda.

Next to final word — persuading someone to be for ESOPs cannot be successful if the seller has no respect for the buyer. So, if the ESOP company leaders dislike their member of Congress, or think members of Congress are no good, do your fellow ESOP colleagues a favor — don’t lobby, as believe it or not, members of Congress, as a rule, can read people very well. Like anyone, if they sense hostility, they will not listen to the argument, unless they perceive the vast majority of voters think the same way. Unfortunately, the vast majority of voters, or really, all voters, do not vote based on ESOP issues.

The final word is an ESOP advocate has to have something specific to request from the decision maker. A salesperson would not seek to sell just a brand, but would use the brand to sell a specific product. It is easy for a decision maker to say “I like ESOPs;” it is closing the sale for the decision maker to do something specific to advance the ESOP cause.

Thursday, April 08, 2010

Center for American Progress Against ESOPs?!

Yes, it appears to be the case.

While sorting news clips, we came across an article on the Center for American Progress’s website by Sima J. Gandhi titled “Cracking the Code: A Closer Look at Tax Expenditures Reveals Wasteful Subsidies.” You can read the full article on the Center for American Progress’s website here. The Center for American Progress is a think tank oriented to developing policy for leaders of the Democratic Party.

What’s so interesting about this particular article? Well, ESOPs are number 10 on the list under the heading – Murky stock option incentives. The author states that employee ownership can have positive effects, but goes on to say that it’s up for debate as to whether or not ESOPs do more good than harm and of course brings up Enron. We’ll quote the second to last sentence directly — “Policies that support small businesses and encourage people to save for retirement are sound government policies, but whether these policies should be enacted through ESOPs is not clear.”

J. Michael Keeling, president of The ESOP Association decided to write a letter to the author. We are re-printing the letter below which was sent earlier this week.

April 6, 2010

Dear Ms. Gandhi,

Needless to say, I was dismayed by your Wall Street centric blast against national policy to encourage employee ownership through the ESOP model.

Over 99% of the ESOP companies in the U.S. are not publicly-traded on stock exchanges, around 90% employee fewer than 500 persons, and data indicates 85% were created by an exiting shareholder, often the owner-founder of the corporation.

When an exiting owner exits a small to mid-size business s/he faces limited options. One, go public; two, sell to her/his second tier executives in a management buyout; three, sell to a competitor; four, sell to a private equity firm; five, liquidate the business’s assets; and six, sell to an ESOP to benefit his/her employees.

Option one is unrealistic; two is often not possible, because second tier management in small businesses do not have fat cat income to justify lenders underwriting their purchase of the company where they work; three and four usually, and notoriously, result in lay-offs of the employees who created the successful business; and five is not good for anyone – the community, the employees, the U.S. economy, or the exiting shareholder.

Congress passed laws in the mid-1970s, and mid-1980s, to encourage the exiting shareholder to sell to an ESOP, the sixth option mentioned.

Has Congressional intent been met? Yes, it has. Over 30 years of data from the typical ESOP universe – not Lehman, not Enron, not Bear Stearns, your cites used to condemn ESOP law – they were not ESOP companies by the way – has shown ESOP companies overwhelmingly are high performing companies: more sales, more productivity, better benefits, including more often than not retirement savings plans in addition to the ESOP, better pay, and higher retirement income security, among other things.

We enclose summaries of only a handful of the studies.

Certainly, ESOP companies are not 100% home run stories. But we live in a free enterprise system, where risk goes along with reward.

If the Center for American Progress view of economic justice is to shield middle class employees from risk, or as some on Wall Street would say, the “little” people, then it has to reject not just ESOP policies, but a whole slew of our American economic policies.

I would welcome your taking the time to come to The ESOP Association’s 33rd Annual Conference, May 12-13, at the Renaissance Washington Hotel, 999 9th St., Washington, DC, to review a display of work by ESOP companies to empower employees, and to build high performing companies. You might want to hear remarks at the opening lunch on May 12th, by Dr. Richard Freeman, head of the Economics Department, Harvard University, as he gives a preview of his, and Dr. Joseph Blasi’s and Dr. Douglas Kruse’s, Rutgers University, research on “shared capitalism”, which includes ESOPs, in their soon to be published book, Shared Capitalism at Work: Employee Ownership, Profit and Gain Sharing and Broad-Based Stock Options, (National Bureau of Economic Research Conference Report.) Or come to the Association’s 18th Annual Awards Banquet, May 11th, Renaissance Washington Hotel, 7:00 PM, to see the men and women who make ESOPs special.

In sum, I feel your attack on ESOP law on behalf of the Center for American Progress was just wrong.

Sincerely yours,

J. Michael Keeling, CAE

President

We’re not sure if you’re familiar with the Center for American Progress but you can read more about the organization here. We, however, did want to point out a few things that we thought odd. The group is dedicating to improving the lives of Americans through progressive ideas as well as building on the achievements of progressive thinkers to address economic growth and opportunities. Yet, they are against an idea like the ESOP that has been proven, as 30 plus years of research has shown, to improve the lives of Americans by offering more opportunity at their jobs to grow, participate, and build a nest egg for retirement. They want to shape the national debate but how far will one really get by ignoring the people who make a company what it is and help drive the American economy through the small businesses that they work for.

Just as a side note, the group is headed by John D. Podesta, the former White House Chief of Staff under President Bill Clinton. He has had a long and storied career in Washington, DC. He’s an influential person in this town and one with wide reaching opinions. That’s the reason we’re bringing this up here. While we are always working to increase knowledge of ESOPs and, especially within the Congress and Administration, it is broad statements like this one that we are working to change.

Tuesday, March 30, 2010

The ESOP Association has been running every Tuesday for the last seven weeks, tips for putting together a Congressional Company Visit. All of the information featured in these excerpts is available on the Association’s website – http://www.esopassociation.org. The full Kit is available on the homepage under News.

The Follow-Up

As powerful as a Congressional visit is to an ESOP company in winning support for ESOPs in Congress, it is not the end all of the be all. To really nail down the case for ESOPs, follow-up is crucial. Since follow-up is so crucial, this fact makes it even more important that the ESOP advocates that hosted the Congressional visit have a reason to follow-up, such as asking politely if the member has declared for ESOPs.

Number one, it goes without saying that a nice letter of appreciation from the company, and as many of its employees as it desires, to the member of Congress for his or her visit, that mentions by name the staff person[s] who facilitated the trip must be written.

In the letter, make a brief reference to the point made during the visit that you anticipate that in 2010 the tax committees of Congress will review various proposals impacting current ESOP law, and you will welcome the opportunity to review the proposals with [her][him] at the appropriate time.

Other Follow-Up Steps: Under the theory that one does not grow Congressional support overnight, but cultivates it month after month, and year after year, the host of a Congressional visit should take every opportunity to renew, or exchange greetings with the member and/or her or his staff.

For example, let’s assume you are attending the Annual Conference in DC. Try to drop by the office of the member of Congress that visited your company before the Congressional reception, or at some other time during the Conference, or the day after if you are staying over. If the member of Congress has not signed on to the pro-ESOP legislation, it is a perfect time to make inquiry about the review process again.

For example, let’s assume your company is having a grand celebration, or opening a new building, or marking a milestone—invite the member of Congress to the event, thinking ahead of time of those periods of the year that the member of Congress might be in her or his state or Congressional district.

For example, let’s assume you read in the newspaper, or received a notice that the member of Congress was going to have a town hall meeting in your community, or near your community, or conduct the new, popular telephone town hall meeting, when thousands can call-in and ask, and listen, to their member of Congress answer. Make a point to attend, or call, and before the formal Q&A period, or after the close, make a point to go up to the member of Congress and shake hands, reminding her or him of his visit. Don’t forget, if the member of Congress local staff person is with him, the same person who came to your company, shake that person’s hand as well, and exchange pleasantries, expressing appreciation once again for the visit. (Avoid town hall meetings until the health care debate ends.)

(Nothing is more powerful than that staff person to say in the car as they drive away, “You know, those ESOP people sure are nice.)

Fall Back

If after several tries, it is not possible to schedule a visit for your member of Congress to visit your company, why not visit the member at his/her District office? While this meeting is not as effective as a company visit in terms of introducing a member of Congress to your company and its culture, it is another way to reach out to your member of Congress.

This meeting is a great opportunity to bring employee owners to the meeting to tell your company’s story and ask for his/her support of ESOPs and employee ownership in America.

Super Duper Fall Back

It is not easy to fit into the schedule of a member of Congress, particularly a Senator who might be in your part of the state only occasionally. No matter what you or your colleagues might think of a member of Congress, they have tremendous demands on their time. There is fortunately a very good fall back position that pays dividends for a future visit by the member of Congress.

If a member of Congress cannot schedule a visit to your company in the near term, ask the top staff person in the district or state office to make a visit. Treat the visit similar to one by a member of Congress, ending the visit with the presentation of the “sales” pitch.

Worthless waste of your time to have a young whipper snapper, hot-shot Congressional aide visit your company? Not at all, as that young person will be riding around the Congressional district or state with the member of Congress many, many hours, with not a great deal to talk about. (Unfortunately, cell phones, and black berries have cut down car talk time between the member of Congress and his or her staff car driver.)

For example, once a company tried and tried and tried to get a Senator to visit their company. Finally they settled on having the state director come to the company. Then in a few weeks that person was riding down the turnpike with the Senator and mentioned that he had visited with a company just off the exit they were passing, and it was a really special company—an ESOP company. The staff man said that the company leaders had invited the Senator to visit, and that he thought that the Senator should do that. The Senator came. The Senator chaired an important committee of Congress, and upon returning to DC told his committee staff that he wanted an employee owner to testify at the next appropriate committee hearing. The employee owner came. Also testifying that day was the Secretary of Labor. He was impressed. He was tasked by the President to have a “seminar/symposium” in Chicago on the work place of tomorrow. He remembered the employee owner. He invited him to testify before the President of the United States. The President of the United States was impressed. It is all on tape.

Never feel you failed if you have the staff person visit your company first.

Conclusion

HAVING A MEMBER OF CONGRESS BECOME AN ESOP CHAMPION IS NOT A ONE TIME EFFORT. ON THE OTHER HAND, THE FIRST ONE TIME EFFORT SHOULD BE A VISIT TO THE ESOP COMPANY, AS IT IS THE MOST EFFECTIVE LOBBYING TOOL IN THE ESOP ADVOCATES KIT. THE DATA FROM THE PAST 30 YEARS PROVES THIS STATEMENT AS A FACT.

Wednesday, March 24, 2010

The ESOP Association will be running every Tuesday for the next seven weeks, tips for putting together a Congressional Company Visit. All of the information that will be featured in these excerpts is available on the Association’s website – http://www.esopassociation.org. The full Kit is available on the homepage under News.

What Are You Selling, and How Do You Make the Sell?

It does not serve the ESOP cause well if the goal is to convert a member of Congress to the ESOP champion status to let him or her come to your company, and do no more than pat employee owners on their backs.

It is true that it is sometimes unrealistic to expect a member of Congress to “buy” into the ESOP agenda based on his or her first experience. (If your member of Congress is already on the list of ESOP champions, meaning he or she have publicly done something that is evidence of a pro-ESOP position that is part of the public record, then having the visit is super important to reinforce that member’s view that being for ESOPs is a good political posture to have.)

Everyone knows that on January 20, 2009, a new Administration took over the Executive Branch of the U.S. government. Led by President Barack Obama, this Democratic Party group of officials faced a severe, almost depression-like economy, had a commitment to reform the U.S. health care system, and committed to expanding government efforts to fund alternative energy industries.

No matter whether one supports the Obama Administration’s actions in these areas, all agree that those actions have resulted in trillions of dollars of new, or proposed spending, which President Obama says will balloon the Federal deficit, which he promises to address as soon as the economic crisis is over, health care reform is in place, and the nation has begun to develop a large and sustainable non-oil and gas energy supply network.

In the 1980s, Congress faced a similar deficit problem. The response was to enact new taxes nearly every year, under the rhetoric of closing tax loopholes for corporations and individuals.

The same approach will be expected in the years 2010 through 2012, at least.

Unfortunately some in the Administration and some tax experts advising Congress consider ESOP tax law benefits to be corporate and/or individual tax loopholes, to be closed—in other words, repealed.

But in place, as laid out in this Advocacy Kit, is the plan, with the tools, to build support for current, and even better ESOP laws, among the elected members of Congress, in both the House and the Senate.

So, when the member of Congress visits your company between today and when specific ESOP proposals surface, good or bad, what do you want her or him to do?

Ask for support of S. 1612.

[If U.S. Senator]

“Senator _____________, Senator Blanche Lincoln has introduced pro-ESOP legislation S. 1612. We ask that you consider joining Senator Lincoln to show support for broad-based employee ownership.

Here is a summary of S. 1612.

If you and your staff wan more details, don’t hesitate to ask for a briefing from our legal counsel in Washington, DC at The ESOP Association.

[If a member of the U.S. House of Representatives, ask for support of S. 1612 when introduced in House, or to co-sponsor, H.R. 3586, H.R. 692, or H. Con. Res. 204]

“Representative ___________________, we know Congress will not consider legislation of interest to us in the ESOP community in the next moth or so

For example, we are concerned about proposals that have surfaced in the Ways and Means Committee do restrict ESOP companies, and thus making ownership through ESOPs less likely. Congressman Rangel’s tax reform proposal of 2007 had a provision making it unlikely that an S corporation ESOP could compete for qualified executives. And of course, new proposals affecting ESOPs may surface during the give and take over revenue raisers to lower the deficit, or to lower corporate tax rates.

We also understand that in the Senate Senator Blanche Lincoln has introduced positive ESOP legislation, S. 1612. We believe this legislation and other pro-employee ownership initiatives already introduced in the House such as H.R. 3586, H.R. 692, and H. Con. Res. 204 will help to expand and improve ESOP companies in the U.S.

We would therefore ask that you and your staff be open to our discussing these legislative matters as they unfold. In doing so, we hope you can be supportive of the pro-ESOP position, such as S. 1612, H.R. 3586, H.R. 692 and H. Con. Res. 204.

Tuesday, March 16, 2010

The ESOP Association will be running every Tuesday for the next seven weeks, tips for putting together a Congressional Company Visit. All of the information that will be featured in these excerpts is available on the Association’s website – http://www.esopassociation.org. The full Kit is available on the homepage under News.

Helpful Tips for a Company Visit

· The visit is about the people and culture of your company. What makes your company unique? What does your company do/make?

o Prepare a one page handout on company and ESOP for Member of Congress and staff.

· Get employee owners involved and most importantly, make sure they know when and why the member of Congress is visiting.

o Provide some background on the member of Congress to the employee owners. You can find this information on his/her website.

o Announce the visit by email, information in community rooms and on bulletin boards.

· Have a few employee owners ready to share their story about why the ESOP is important. Have a few employee owners ready to ask questions as well.

o Prepare questions in advance to keep conversation flowing, such as:

[If Congressperson is a member of the House Committee on Ways and Means or Senate Committee on Finance:

· Do you think that your committee will take up a big tax bill this year?

· Do you think your committee will make any changes in ESOP tax law this year?

· Or, a question about a “hot” topic local issue that has relevance to Congress such as: Do you think that there will be money soon to widen interstate X?]

[If Congressperson is NOT a member of either Congressional tax committee:

· Will Congress take up a big tax bill this year?

· Do you ever hear any talk about employee stock ownership?

· The local “hot” issue.]

· Take pictures!

· Send out a press release announcing the visit.

· Most important – Remember to close the sale!

Tuesday, March 09, 2010

The ESOP Association will be running every Tuesday for the next seven weeks, tips for putting together a Congressional Company Visit. All of the information that will be featured in these excerpts is available on the Association’s website – http://www.esopassociation.org. The full Kit is available on the homepage under News.

The Member of Congress Is Here—Now What?

The member of Congress more often than not arrives late, in a car driven by one of his or her district office aides. Please remember to take note of the aide and have some one in the company engage that person in conversation during the member of Congress’s visit. District staff often feel like the odd person out, but in many ways a District staff person is more influential with a member of Congress than anyone on the member of Congress’s Washington staff.

Make sure that people in your reception area know the member of Congress is coming. Have the welcoming delegation ready to come out quickly once notified by front desk personnel.

It is always positive to have on the bulletin board, or stand, a message of welcome for the member of Congress.

Now we come to the meat of the visit.

On the one hand it is dumb to just let the member wander around, or to sit in the conference room and have a disjointed conversation. On the other hand, it is dumb to act like you are afraid of the member of Congress engaging in conversations with employees. And it is a waste of time to permit the member Congress to give a speech, as that speech is more than likely going to take up the entire visit time. (Politicians like to give speeches, as one, they are usually good at it, and two, they do not have to make commitments if there is not time for the constituent to ask a question, or to make a request.)

A good way to think about your time with the member of Congress is that you have a plan of “organized spontaneity,” or “spontaneous organization.”

There is no question that each company should tailor the visit that best suits its culture and style.

Following is a typical approach:

· A delegation of four or five persons greet the member of Congress in the reception area. The group might include the employee owner chair of the ESOP/employee communications group—goes by various names in different companies as well as the CEO and two or three other senior executives.

· After the greeting, the delegation might escort the member into a conference room for a brief power point, or video about the company, and perhaps some information on its ESOP. The conference room group should include more than the three or four greeters, perhaps 10 or more persons, including, if there is one, the entire ESOP/employee committee group.

· After that presentation of the company and ESOP history, a walk around to see the company, stopping by different stations on the floor, or in the offices if not a manufacturing business, for an exchange of greetings is positive. Having one to three employee owners primed to comment on the ESOP at the company is powerful.

· After the walk around, the core delegation, the first four or five for example, or the CEO, and/or chair of the ESOP/employee committee, should take time, perhaps back in the conference room to make the “sale,” or in other words, to ask for the member of Congress to do “something” for ESOPs.

Now, this outline of a visit is an example, and again each company needs to implement the visit in accord with its own style and culture.

For example, many ESOP companies over the years have had positive results with all the corporate headquarters employees in a room and having just a power point, or video presentation about the company. Others just turn the member of the Congress loose on the company floor, and have him or her meet up with executives later. Others have the member join the early morning “team” session, where the day’s work load and assignments are discussed and divvied out. Others have the member join the annual meeting where the financials are discussed and statements of ESOP accounts handed out. Others have the member join the annual picnic, and its games. Other have the member come to the special event, such as an anniversary celebration and so on.

So flexibility is possible depending on the company, but again, do not leave the encounter to chance.

Tuesday, March 02, 2010

The ESOP Association will be running every Tuesday for the next seven weeks, tips for putting together a Congressional Company Visit. All of the information that will be featured in these excerpts is available on the Association’s website – http://www.esopassociation.org. The full Kit is available on the homepage under News.

This week — Best Time for a Visit

While it might be a truism to say, “anytime,” or “better late than never,” the fact is that having a member of Congress visit your company is best when there is NO ESOP government relations crisis. Waiting to interact with a member of Congress when there is a crisis means that the ESOP issue will be one of many issues that might be before the member for decision. And of these non-ESOP issues she or he may be more familiar with and has probably already taken a position on these issues. Such a situation means the ESOP issue might go way down the list of importance to that member of Congress.

So the best time to arrange a visit with a member of Congress is when there are no crisis ESOP issues to be decided by Congress, or in other words, NOW.

Specific Time: The best time for a Congressional visit would be during Employee Ownership Month at one of the company’s EOM events, during October.

In odd numbered years, October, during the week, is not compatible for most Congressional company visits since Congress tends to be meeting the entire working week that month, except for the long weekend of Columbus Day, or, sometimes during a Jewish Holiday, which of course varies year to year.

In even numbered years, which are election years, October is a good month to try to get a Congressional visit, since Congress more often than not, recesses for the entire month of October before the early November general elections.

But the fact is that many companies do not have special events during EOM, and often, if the events are scheduled, they would not match the member of Congress’s schedule.

Here are some general rules about when most Congresspeople are home and thus available for company visits.

· January is a month when the Congress often meets very little.

· February, the week of the President’s Day Holiday.

· The week around Easter, which can range from late March to late April.

· The week before and/or after Memorial Day.

· The week around July 4th.

· Nearly all of August, as Congress is usually in recess most of August until after Labor Day in September.

· Mid-November and all of December, keeping in mind that in election years, October is usually open for district visits by members of Congress.

Special Events: Many companies have employee owner events that are not EOM related. For example, many companies have an all employee meeting when the new valuation is available, when statements are passed out, or an anniversary of the founding of the company, and similar events.

· Be flexible in suggesting a day and time for the visit. For example, “We would be able to welcome [Member of Congress] on either [day] at [time] or [time and date – mention two options]; or we can host [Congress {man} {woman} on [give some other dates.]

· Be prepared for changes. Schedules of elected officials can be notoriously unpredictable due to changes in the congressional schedule.

Tuesday, February 23, 2010

The ESOP Association will be running every Tuesday for the next seven weeks, tips for putting together a Congressional Company Visit. All of the information that will be featured in these excerpts is available on the Association’s website – http://www.esopassociation.org. The full Kit is available on the homepage under News.

First Steps

The ESOP advocate will first want to contact the person who is the so-called District Administrator if the Congressperson’s main district office in your area, or the Office Director if the Congressional office near you is a satellite office of his or her primary district office. Given that Congressional personnel frequently change, it is not fatal to not know name of the person. The name is usually on a member of Congress’s web site, or call The ESOP Association. Congressional staff change rather often, thus it is not unusual for a website to be out of date. If you know the staff person’s name, use it. A Senator has one main state office, and several regional offices as a rule. If her or his main state office is near you, you will ask to speak to the state Administrator, and if a satellite office, the Office Director.

In seeking an appointment through the District or State office, the best tactic is to call first to nail down who in that office might handle the member’s schedule when s/he is home. Set forth below is a suggested telephone script.

ESOP Advocate: Yes, I am [name] and I work for [name of company]. We are an employee-owned, or ESOP company. We are located over on [street address, community, etc]. (Tip: Make it vivid where you are located in order to create a visual image. Remember, the person you are talking to probably has driven by, or has heard of your company – you are speaking to a fellow local citizen.) As an employee-owned company, we are required to comply with several federal laws and thus we are subject to being judged by Congress as to whether we are complying with the intent of those laws. I would like to speak to someone about having [Congress][woman][man]/[Senator] [name] visit our company in the near future and meet our people.

Congressional Aide: [Name] handles the [Congress][woman][man]/[Senator’s] schedule whiles/he is in the [district] [state]. I will see if s/he is available.

Person Handling Schedule: Yes, this is [name]. May I help you?

ESOP Advocate: Yes, I am [name] and I work for [name of company]. We are employee-owned, our [number] employee owners are more than aware that our employee ownership, through an ESOP, is subject to federal law, particularly Federal tax and retirement laws. We are located over on [address].

We would like to invite [Congress][woman][man]/Senator [name] to our company to see what we are doing and how the employee ownership program, through our employee stock ownership plan, or ESOP is benefiting our people and company. We would be honored for such a visit, and of course, we would at that time take a brief moment to highlight some of the key issues pending before Congress that might affect our employee owners negatively.

Congressional Aide: Well, I do not have the schedule for the [Congress][woman][man]/

Senator’s next visit to our area, and I would have to review you invitation with him. It would be helpful if you would make your invitation in writing.

ESOP Advocates Response to This Response: Yes we intend to formalize our invitation in writing, and were seeking input on where the letter should go and to whose attention.

Congressional Aide’s Response to This Response: Okay, please send the letter to [name of Congressperson/Senator, at this office, marked to [my][name of someone else’s] attention, setting forth the information you just gave on the phone here. Or, if the schedule is handled out of DC, Well the schedule is handled out of DC, and write the [name of Congressperson/Senator at his/her DC office, and make it to the attention of his/her scheduler [name].

ESOP Advocate: I appreciate that information, and we will get out that letter today. Your time and attention to this matter is very much appreciated.”

Note: Since the anthrax attack on Congress, letters are tested and gassed before being delivered to a Congressional office. This process can take up to one week. But emails and faxes are frequently ignored if arrangements are not made ahead of time to email or fax a staff person directly. So when discussing the formal written invitation, ask if you can email it directly to the person handling the member of Congress schedule. If you are not given a specific person’s email address, rely on a letter. If faxing, only fax to the person who has told you, “I will expect your fax.”

Suggested Letter of Invitation for a Company Visit

Name of Member of Congress/Senator

Local Address/or DC is so instructed

City, State, Zip

Dear Representative/Senator [name]:

On behalf of the [number] employee owners of [name of company], located in [name of city] I spoke with [name of person you spoke to] about your visiting our company when you are home.

We are proud of our employee ownership through an employee stock ownership plan, or ESOP and we also know that Federal laws govern the program. We are also aware that pending before the Congress is both positive ESOP proposals and negative ESOP proposals.

We believe that the best way to judge the value of employee ownership is to see and meet those who are working with the ESOP in a company, and who are participating in the ESOP at a company.

We would be honored to host you at our office as your schedule permits and hope you can make time to meet with us in the near future.

As we know demands on your time are high, and you receive many requests for visits and appointments, we hope that you and your staff would not mind our checking on the status of this invitation in the weeks ahead. All of us would be honored to have you come.

Your consideration of our request is greatly appreciated.

Sincerely,

Name: Tip: having several signatures on this letter is helpful.

cc: [Name of Person Who You Talked To On Telephone]

Note: If you have made arrangements to email or fax, the message is the same as the above letter.

How to Find Congressional Contacts

1. You can call The ESOP Association, and the information will be provided; or

2. Go on The ESOP Association’s website, www.esopassociation.org and click on “Government Affairs.” Once on Government Affairs, click on “Capitol Links.” Once there, you can click onto the website of the U.S. Senate and U.S. House of Representatives. You can get the list of members, once you have yours, click to her or his website for addresses, telephone numbers, or often staff names. (Note, soon this site will have software for direct contact, or letter writing to these offices.)

3. Use the Congressional Handbook provided by The ESOP Association.

Tuesday, February 16, 2010

The ESOP Association will be running every Tuesday for the next seven weeks, tips for putting together a Congressional Company Visit. All of the information that will be featured in these excerpts is available on the Association’s website – http://www.esopassociation.org. The full Kit is available on the homepage under News. Today we are featuring – What You Need to Know, Part 1.

Foreword

Please note, if and your co-owners follow the enclosed steps to obtain a visit of a member of Congress, or his or her top staff person, to your company, and you let The ESOP Association know, we will supplement the following document with a short report on the member of Congress who will visit your company.

The report we will supply will tell you what prior record, if any, the member of Congress has on ESOP issues. The report will tell you what committees in Congress the member serves on, and what relevancy, if any, those committees have to ESOP laws. The report will tell you what the public record says is that member’s prime interests as a legislator, and the major, if any, legislative initiatives the member of Congress is involved with. Finally this report will share any interesting data about the member who will visit your company that is relevant to her or his service in Congress, and/or issues.

For example, the report might contain information that the member of Congress was a small business person before going to Congress. This fact would be interesting in that most ESOP companies, and probably yours, are small, privately held businesses. The report might have information that the member recently served in the military. The report might have information that his or her predecessor was a strong supporter of ESOPs. The report might have information that she or he was a lawyer in a law firm that does ESOP legal work.

In other words, The ESOP Association stands ready to give you the most up to date information and ideas for a successful visit by a member of Congress to your company, which is our most important, and most powerful lobbying tool.

[Note: The reference to Member of Congress includes a member of the U.S. Senate, or U.S. House of Representatives.]

Introduction: This document establishes why having a member of Congress visit an ESOP company, your ESOP company, is the most important government relations activity you can undertake, and sets forth steps for arranging a visit, what might be done during the visit, and what is the follow-up to the visit.

Fact: The ESOP Association’s members have advocated for ESOPs with members of Congress since 1980. There is one fact that has been consistent the entire time: This fact is that the most effective activity in obtaining the support for ESOPs from a member of Congress is having that member of Congress visit an ESOP company. The company visit is more effective than a visit in the member of Congress’s home office and certainly more effective than visiting with a member of Congress in Washington DC. (Note, when using the term “member of Congress,” included is a Senator.)

To make the factual case—since 1982, no member who has visited an ESOP company in his or her Congressional District or State has failed to take the pro-ESOP position. At worse, one member, who visited an ESOP company in 1985, took a neutral ESOP position after having taken a position not in favor of ESOPs in 1984. In fact, most members of Congress who have visited ESOP companies have become ESOP Champions, or even ESOP Super Champions.

The ESOP position of members of Congress who were exposed to ESOP advocates during DC visits by those advocates does not match the track record of those who have visited with an ESOP company in his or her home district or state.

In sum, if you want to have your member of Congress support pro-ESOP positions, the most effective step you could take would be to arrange a visit by that member of Congress to your company.

Thursday, February 11, 2010

Good Developments in Worrisome Times

The following post ran in the January 2010 issue of the ESOP Report as the Washington Report. We are re-printing the article on the blog.

Setting aside the horrible developments in Haiti, concerns over Islamist extremists not giving up the goal of killing as many Americans as possible, which triggers young American men and women being in far away places getting killed and maimed, and instead looking at what is the core reason for The ESOP Association’s banding together thousands of people wanting to further employee stock ownership, there were positive developments for ESOP law in Congress the last month of 2009.

Starting with the Senate, just before it left town on December 24th, three Senators, led by Senator Bernard Sanders [I-VT], introduced two non-tax, but pro-ESOP bills, S. 2909 and S. 2914. Given that in August Senator Blanche Lincoln [D-AR] had introduced S. 1612, primarily proposing pro-ESOP tax law changes, these two new bills widens the ability to garner more Senators to say, “I am for ESOPs.”

[Both bills are summarized on the Association’s website, and the website is a doorway to complete legislative information on all legislation of the 111th Congress through the site’s Capital Links button under Government Affairs. In general, S. 2909, titled the “Worker Ownership Readiness and Knowledge Act,” is to provide state programs to encourage employee ownership and participation in business decisionmaking throughout the U.S. S. 2914, titled the “United States Employee Ownership Bank Act,” is to provide for the establishment of a Federal lending program for certain ESOPs and employee-owned co-ops in the U.S. Department of Treasury.]

A bill such as S. 2909 was first introduced in the U.S. Senate in the late 80s by Senator Jeff Bingaman [D-NM], but did not resurface until Senator Sanders’ action.

When Senator Sanders served in the House of Representatives, he introduced a version of S. 2914 in two Congresses, first in 2004. There was a hearing on the bill, and both the Chair of the Association at that time, George Ray, now a Life Service Award member, and President Keeling testified on the legislation, along with ESOP participants from Vermont ESOP companies.

But just as important as the specifics of the bills is that Senator Sanders has been joined by three other Senators in endorsing the bills. They are Senators Leahy [D-VT], Brown [D-OH], and Menendez [D-NJ]. While Senator Leahy has been a champion for ESOPs for sometime, co-sponsoring S. 2909 and S. 2914, it is the first time that Senators Brown and Menendez have said to the world at large, “We are supportive of ESOPs.”

In the same vein, over on the House side in December, seven members came forward to co-sponsor pro-ESOP legislation, which was introduced earlier this year, and about which there was a December 2009 newsletter front page cover story.

Joining as co-sponsors of the pro-S ESOP tax proposed bill, H.R. 3586, were Congressmen Barney Frank [D-MA], Bob Goodlatte [R-VA], Bill Pascrell [D-NJ], and Gary Peters [D-MI]. Congressmen Frank and Goodlatte have in prior Congresses signed up publicly for pro-ESOP legislation, but Congressmen Pascrell and Peters are taking their stand for ESOPs publicly for the first time.

And signing up on the House Concurrent Resolution reiterating that the House still supports ESOPs were Congressmen Peter Roskam [R-IL], Bill Posey [R-FL], and Earl Pomeroy [D-ND]. Congressmen Posey and Pomeroy publicly signed up to co-sponsor ESOPs the first time, although in fairness, Congressman Pomeroy has been very positive in visits with North Dakota ESOP companies for over a decade.

Another big plus on these new “champions” in the 111th Congress for ESOPs is two of them, Congressman Pascrell and Congressman Pomeroy, are members of the House Ways and Means Committee, where 90 to 95% of the ESOP laws are considered for improvement, or curtailment.

As with most things in life, there are observers of the Washington, DC legislative process who are cynics about members of Congress co-sponsoring legislation, as it does not guarantee that any one of the members will be “working” to protect or expand the policy embodied in the proposals when behind closed doors so-called crunch time comes.

While a member of Congress co-sponsoring a bill that a private sector group likes does not guarantee that the member will vote to protect the group’s interest in a difficultly negotiated committee bill to raise taxes for example, it is evidence that he or she is more than likely to be an ally in the crunch. For example, let’s assume that the Senate Finance Committee is to raise taxes by $150 billion, and the Administration has made 25 proposals to raise the taxes, and one is to cutback on an ESOP tax benefit. There will be among the 24 other proposals some tax benefits that are near and dear to the men and women who have co-sponsored Senator Lincoln’s bill. Will they, behind closed doors, fight against the ESOP proposal, or will they stand aside on the ESOP proposal in order to protect something among the other 24 near and dear to their state’s interests? One never knows ahead of time. But someone who has publicly declared for ESOPs by co-sponsoring a bill promoting ESOPs, is more likely to stand for ESOP behind closed doors than someone who has not publicly indicated support for ESOPs. This observation is true in the House as well, and is the key point of TEA’s strategy that the best defense be a good offence in the legislative struggles.

So, why is all of these new and renewed support for pro-ESOP bills from members of Congress important? Well, back to the big picture—Congress and the Administration will soon be raising taxes to close the Federal deficit, as was the case in the 80s. And, as was the case in the 80s, cynics about ESOPs working in key staff positions for Congressional committees, and in key Federal agencies that regulate ESOPs, will propose cutting back, or eliminating ESOP tax incentives. So, crunch time may be around the corner, and the ESOP community will urge its publicly declared champions to stay the course for ESOPs.

Tuesday, February 02, 2010

Budget Calls for Tax Increases of $1.1 Trillion over Next 10 Years

It’s a big deal in D.C. when the President, no matter whether Democrat or Republican, publishes his budget recommendations for the upcoming fiscal year, which begins on October 1. [In other words, the budget proposal released on February 1 is for the Federal Fiscal Year 2011, which begins on October 1, 2010.] Everyone reads it over carefully, particularly proposals to alter tax laws.

The ESOP Association has been consistent over the past two years noting that the ballooning deficit would lead to the same scenario we saw in the 80s. Beginning in 1982, Congress passed and Presidents Reagan, Bush, and then Clinton, signed into law new tax increases. The overwhelming majority of these tax increases were called “loophole closers.” And we cannot forget that for many cynics of ESOPs who hold important positions on Congressional staffs, and in the Administration, all ESOP tax incentives are “loopholes” at worse, and wasteful tax expenditures are best.

So while we can be pleased that this recently released budget by President Obama does not propose any change in laws impacting ESOPs, it should be noted that it calls for tax increases equaling $1.1 trillion over 10 years. Some of the proposals are very controversial, and they will be rejected by the House Ways and Means Committee and the Senate Finance Committee. For each tax increase proposal rejected, or if you prefer revenue raiser or loophole closer, the Committees will look at other ways to increase taxes by going after tax preferences, loopholes, etc. In the 80s, that act of looking for something else often led a tax committee member to be persuaded by professional staff to put a negative ESOP tax proposal forward to “pay for” rejecting another tax revenue raising proposal.

And of course, next year there will be an additional set of revenue raisers proposed.

Very good, very pleasing that ESOPs were not targeted in the 2011 budget proposal; but the atmosphere is fraught with an increase taxes wind, and every advocate of ESOPs has to be on her and his toes in making the case, on the local level, that employee ownership through ESOPs is good for the local community, the employees, the company, and overall the nation.

We won more than we lost in the 80s, and the same can be true in the second decade of the 21st Century.

Thursday, January 28, 2010

Legislative Highlight — S. 1612

S. 1612, the Employee Stock Ownership Plan Promotion and Improvement Act of 2009, was introduced in the Senate on August 6, 2009 by Senator Blanche Lincoln [D-AR].

S. 1612 was co-sponsored by the following Senators:

Senator Maria Cantwell [D-WA]

Senator Saxby Chambliss [R-GA]

Senator Mike Crapo [R-ID]

Senator Johnny Isakson [R-GA]

Senator Patrick J. Leahy [D-VT]

Senator Mary L. Landrieu [D-LA]

Senator Sheldon Whitehouse [D-RI]

S. 1612 Summary:

One, S. 1612 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, placed on the distributions from current earnings that are passed through to ESOP participants in cash.

Two, S.1612 would clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax.

Three, S. 1612 improves the 1042 ESOP tax deferred rollover provisions by (a.) permitting sellers to the ESOP of an S corporation to utilize the ESOP tax benefit referred to as the tax deferred rollover, or the so-called 1042 treatment; (b.) permitting proceeds received from a 1042 transaction to be reinvested in mutual funds consisting of operating U.S. corporation securities; and (c.) redefining what is a 25% owner, for purposes of IRC 1042, as a 25% owner or more of voting stock, or 25% owner or more of all stock of the corporation, instead of current law definition that owning of 25% of any class of stock is a 25% owner for purposes of IRC 1042.

And, four, S. 1612 would eliminate a bias against majority owned ESOP companies by making clear that a non-ESOP small businesses currently eligible for any Small Business Administration program is still eligible for the SBA program if becoming a majority owned ESOP company with the same characteristics it had before if it becomes a majority owned ESOP company. (A majority owned ESOP company is 50% plus owned by the ESOP on behalf of the employees.)

S. 1612 Status:

The bill was read twice and referred to the Senate Committee on Finance.

Importance of S. 1612 to ESOP Community: Like all pro-ESOP bills, a primary strategic reason S. 1612 is important to the ESOP community is that it is a tool that identifies who in Congress will be for ESOPs, by opposing negative ESOP proposals, as well as, supporting new, good ESOP laws.

Specifically the 10% early withdrawal tax in passing through S dividends to ESOP participants results in an S ESOP having little cash flow enhancements for less than 100% ESOPs. In addition, where the ESOP is just one of multiple shareholders, distributions to pay tax to the non-ESOP shareholders that remain in the ESOP, literally transfers the ESOP status, as cash becomes more than the value of the ESOP stock.

It is important to permit sellers of S stock to take advantage of code section 1042, as there continues to be a waste of resources in conversion of a C to S to enable 1042 treatment.

And it is very wrong to deny a small business owned by an ESOP to be denied SBA status and preferences. This unjustified SBA position often results in a small business with SBA preference losing that preference if ownership is transferred to the ESOP.

2009

Monday, December 21, 2009

Senator Sanders and Colleagues Propose New, and Effective, Ideas to Save American Jobs

We wanted to share with everyone the following press release which was sent out by The ESOP Association this morning about new pro-ESOP legislation introduced by Senator Bernard Sanders [I-VT] on December 18, 2009.

Senator Sanders and Colleagues Propose New, and Effective, Ideas to Save American Jobs

December 21, 2009 (Washington, DC) – The ESOP Association praised legislation introduced Friday, December 18, by Senator Bernard Sanders [I-VT], and co-sponsored by three Senate colleagues: Senators Sherrod Brown [D-OH], Patrick J. Leahy [D-VT], and Robert Menendez [D-NJ]. The first bill, S. 2909, is to provide state programs to encourage employee ownership and participation in business decision making throughout the United States. The second, S. 2914, would provide for the establishment of the United States Employee Ownership Bank.

In a communication to his colleagues, Senator Sanders made these points about the benefits of employee ownership: The economy benefits because, absent employee ownership, many businesses would close down or ship jobs overseas; With employee ownership, businesses stay open and employ American employees; Retiring small business owners find buyers for their businesses [the employees], compensating them for years of hard work; Employee owners retain their jobs, share in future profits, and have greater control over their own vocation; Company performance is often improved through increases in productivity due to employee ownership and participation; and the community benefits from having the company more deeply rooted in the community.

“We are, needless to say, excited that Senator Sanders and three colleagues have put forward these two bills,” said J. Michael Keeling, president of The ESOP Association. “S. 2909 seeks to expand programs that several states have established to help business owners create employee-owned companies. S. 2914 is a bold new approach proposing, for the first time, a Federal loan guarantee program to save jobs in certain situations when the result of the financing would be a company owned 50% or more by the employees.”

The ESOP Association is the national trade association for companies with employee stock ownership plans (ESOPs) and the leading voice in America for employee ownership. The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

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Friday, December 04, 2009

Disappointing and Out of Date Frame of Reference

Well, the White House held its much ballyhooed Jobs Summit yesterday. It made the news, both TV and print, but it did not make much of a splash. There are several reasons why, in my view, but one is it was the same-o, same-o, and in some respects a step backwards.

President Obama and his team put together the usual suspects to “analyze” and “brainstorm” on the American economy. The Administration feels that CEOs of big multi-national corporations, presidents of labor unions, some non-profit think tankers, and a very tiny number of small business reps are going to provide answers on how to create jobs in America.

Very disappointing — for several reasons. In prior Administrations, such as the time President Clinton held an all day roundtable on the workplace early in his Administration, his staff included an employee owner, a machinist, to sit side by side with the labor leaders and the CEOs of big companies.

Then I read where some of the big company CEOs seemed to blame employees for our ills, as being “uneducated,” “not skilled.” Of course this has a ring of truth as our educational system leaves much to be desired, but would it hurt leaders of some big companies to stop pointing fingers at employees, look in mirror, and think of the company’s training and in-house education, or is time off the assembly line going to hurt the bottom line too much?

Finally, it was disappointing because this Administration wants to hear from leaders of U.S. labor organizations that have around 10 to 12 million members, but not hear a word from those men and women in America who number over 53 million, according to the last General Social Survey (GSS), that have some form of ownership stake in the companies where they work. [Employees owning company stock or holding company stock in the GSS survey numbered nearly 37 million persons; an estimates 11 million of these 37 million are ESOP participants.] More information on these GSS surveys can be found on The ESOP Association’s website here, here, and here.

But instead of lamenting the lack of positive interest in employee stock ownership in the current White House, let us focus on how to turn the situation around.

The ESOP Association working with its ESOP company members is doing a pretty good job of the key protection strategy for ESOP laws by having more and more members of Congress take public stances for protecting and expanding ESOPs.

But it is the Employee Ownership Foundation’s work that funds research and surveys, increases interest in employee ownership among young scholars who will be tomorrow’s advisors to government, and the influential think tanks, that is the best tool to finally make employee ownership at least a topic for review whenever in the future the White House, whoever is President, wants to talk about how to create and protect jobs in America.

Monday, November 30, 2009

Not All Gloom and Doom

Following is an abbreviated version of remarks delivered by The ESOP Association’s President and Chief Staff Officer, J. Michael Keeling, to attendees of the 18th Annual Las Vegas Conference and Trade Show held at Caesar’s Palace in Las Vegas, NV, November 12 and 13, 2009. The speech originally ran in the November 2009 issue of the ESOP Report.

“Today’s remarks are in two parts. As I travel around the country speaking primarily to our Chapter meetings, many accuse me of being the “doom and gloom” guy. Many claim I paint a doom and gloom version of events in DC potentially impacting ESOPs because I am trying to scare people to be members of the Association, or to maintain their membership. Less cynical are those who feel I am just sounding the alarm to ensure ESOP advocates stay on their toes when it comes to selling the ESOP message to members of Congress.

So here is the doom and gloom:

Last year in my remarks to Vegas attendees, I praised the historical importance of the election of a man as the number one leader in our nation who just 50 years ago could not eat, sleep, or ride public transportation except as a second class citizen in 20 or so states in our nation.

I also said, without hesitation that day that there are no ESOP fans in his inner circle of advisors, and their view of employee ownership through ESOPs seemed to be shaped by United, Enron, WorldCom, Bear Sterns, Fannie Mae, and so on. And while ESOP fans like to holler that not all of the negative stories arising from the collapse of these companies and their stock value involved ESOPs, in some form or fashion, company stock ownership, direct or indirect, was broad-based in these companies.

One year later, I have not changed my view of the key persons in this Administration.

But my doom and gloom has a caveat — ERISA policy, of which ESOPs are a part, is not front and center at the highest levels of our government. I feel comfortable in stating that in my years of working around the developing of public policy, the number of times that ERISA policy was seriously discussed in the Oval Office of the White House can be counted on my fingers and toes.

But at the level of policy development of retirement savings policy, among third, fourth level, and among career employees of the Federal agencies overseeing ERISA law — IRS, DOL, Treasury, Joint Committee of Congress, tax committee staff, labor committee staff — I call these people not bureaucrats, but ERISAcrats — there is ample evidence that they believe and are trying to promote policies to drastically reform defined contribution plans.

Having read their writings, and having heard them speak, candidly they use the scare tactic that unless major changes are made in Federal ERISA laws, in a few years literally millions of Americans over 65 will be living in poverty, on the streets, on the public dole, hungry, and so on.

The ERISAcrats talk of the wonderful 50s and 60s, and are joined by mainstream media pundits when retired American’s had the “Life of Riley” or “Father Knows Best” lifestyle images with white picket fences surrounding their homes, because they were all retired with a steady stream of income from defined benefit plans.

Of course this picture of retirees in the 50s, 60s, and even the 70s and 80s is just false — at no time did a majority of Americans ever participate in any kind of retirement savings plan sponsored by their employers, whether db or dc.

But be that as it may, the scare tactics, and the twisting of historical data — sadly seemingly used by both left and right political advocates in this day and age of 24-7 news, twitter, facebook, blogs, etc. — has lead to the ERISAcrats putting forth, with supporters among a handful of members of Congress, ideas to make dc plans more like db plans.

For example, using the Federal employee Thrift Savings Plan as a model, there would be a government group that decides what investments an employee and employer could put their savings in; there would be mandatory employer contributions; and mandatory purchasing of annuities with distributions.

Let me assure you, among these recommendations, at worse is the view that no company stock ever be in the “reformed” dc plans, and at best, company stock be limited to 5 to 10% of the assets in an individual account.

But as noted, ERISAcrats — given the low priority retirement savings have when our nation faces two wars, constant threat of terrorists attacks, a sick economy, bitterness over certain social policies, to name a few of the daily headlines — seldom succeed in having their “dreams” become law.

An analogy can be made to the health care debate, as the true desire of the more “liberal” members of society is for a single payer system, and this view ran into a firestorm of effective protest and it is not even being considered by Congress.

But like in the health care debate, the push for change by the ERISAcrats will have some impact on the development of tax policy, and most likely, the lesser areas of ERISA will be endangered — for example, look for 401(k)s to withstand the attack against them since so many k plans cover so many workers — but look for the attack on company stock as a retirement savings asset to have more potential impact since there are not that many ESOPs in our nation.

And the opportunities for the ERISAcrats to reach their desire to stop, or at least, curtail the use of employee stock ownership for retirement savings will be plentiful in the next one to five years, or even beyond.

As I have said in the newsletter, on the blog, and elsewhere, every chance that I get, we are about to see a repeat of the 80s as far as tax policy is concerned.

[Here, Keeling talked of the similarities between the goal to lower the Federal deficit after the 1981 tax cut bill, and the 2009 large spending increases, as in the 80s, when both Republicans and Democrats dedicated their work to raise Federal revenue to lower the Federal deficit.]

So what happened? After the largest tax cut bill in the history of the nation in 1981, within one year, the Congress passed and President Reagan signed the largest peace time tax increase bill in 1982. And there were tax increase bills in 1984, 1986, 1987, 1989, 1991, and 1993 before the tax increases let up.

These bills did not raise tax rates, but instead raised taxes by eliminating, or restricting so-called corporate tax loophole, both corporate and individuals. And what do the ERISAcrats think of ESOP tax benefits that spread the ownership of assets among employees? They view ESOPs as wasteful and not needed, and even “evil” corporate and individual corporate tax loopholes that promote bad retirement savings policy.

In the 80s, with each tax bill, the ERISAcrats put on the table the ESOP tax benefits for elimination, or cutbacks.

Now, I give you the second part of my remarks—which are not gloom and doom.

The ESOP community is stronger today than it was in 1980.

Despite the economy, the Association, and allied organizations that did not exist in the 80s are bigger, with more resources, more key friends in Congress, and with a more entrenched grassroots network promoting employee ownership through ESOPs with members of Congress.

[Here in the remarks Keeling reviewed pending pro-ESOP legislation, and the influence supporters of the pro-ESOP legislation had in Congress. Details about the legislation can be followed in prior newsletters, e-bulletins, and on the Association’s website under the Government Affairs link at the top of the page.]

Key to winning is exposure of your ESOP company in your community. While the Employee Ownership Foundation is making inroads in spreading pro-ESOP facts in academia, and among the nation’s think tanks, what is visible in an ESOP company makes the biggest impression on a member of Congress.

Let me close by sharing a story, first hand, of the power of someone seeing the intangible, and yes it is intangible, power of shared ownership among employees, top to bottom, in a corporation.

As many of you know, the primary ESOP laws exists because of one man, former Senator Russell Long, from 1973 until he retired at the end of 1986. During some of that period, when ERISA was enacted, I worked for a senior member of the House Ways and Means Committee, the former Congressman J.J. Jake Pickle, who like Senator Long, is deceased.

In that era, no one in the House cared about ESOPs. It was viewed as just some sort of weird tax flim-flam by minor lawyers and deal makers to get money out of a private company, and to give public companies a cheap way to tell employees that they had retirement savings.

What a House member did care about was that when there was a so-called Conference Committee to work out the differences between a House tax bill, and a Senate tax bill, he or she could horse trade with Senator Long over an ESOP provision in return for his support to be for that House member’s pet tax law proposed changes.

One day I was in Congressman Pickle’s office during a tax conference period, and he was in what proved to be his toughest re-election campaign that year, 1980. So he was going around to companies shaking hands each week to gain voter support. Out of the blue he said, “I was at [he named a company in Austin, Texas] this past Friday, and they had that thing that Russell talks about all the time, that, that, what do you call it? [I said ESOP]. Yea, an ESOP — I had never been in a company with the same kind of feel to it, the same kind of attitudes towards the CEO and leadership as I walked around. It was special, very special. Russell must be right; he must be onto something with his ESOPs.”

From that day forward, Congressman Pickle was one of the ESOP world’s best friends in Congress until he retired in 1995.

So, our fate is in our hands, to not hide our wonderful ESOP story as a light under a bushel. If we expose our companies, on site, we will maintain ESOP policy and defeat any attack, and hopefully expand over the long run, our pro-ESOP laws.

I thank you for your attention.”

Monday, November 02, 2009

President of US Steelworkers Criticizes ESOPs

One of the major criticisms of ESOPs we have run into over the years is that ESOPs do not make employees “real” owners, or that ESOPs are not “real ownership.” Generally, those making this criticism would be labeled as more “liberal.” [Certain views in conservative circles use different points to criticize ESOPs.]

The President of United Steelworkers International, a very influential labor union in our national politics, Mr. Leo W. Gerard, said in a press release earlier this week:

“We have lots of experience with ESOPs, but have found that it doesn’t take long for the Wall Street types to push workers aside and take back control. We see Mondragon’s cooperative model with ‘one work, one vote’ ownership as a means to re-empower workers and make business accountable to Main Street instead of Wall Street.”

[The quote stems from the announcement of collaboration with the Basque Region’s MONDRAGON, which is the world’s largest worker-owned cooperative.]

We share because this because it is the most clear cut statement from the “not real ownership” viewpoint we have read in print.

Monday, October 26, 2009

House Concurrent Resolution Expressing Continued Support for ESOPs Introduced

The following Legislative Bulletin was sent to all ESOP Association members this morning.

ESOP Legislative Bulletin

Congressman Hinchey Introduces House Concurrent Resolution Expressing Continued Support for ESOPs

On October 22, 2009, Congressman Maurice Hinchey (D-NY-22) introduced House Concurrent Resolution 204 which expresses continued support for employee stock ownership plans.

H. Con. Res. 204 cites the Congressional history of ESOPs, references the 35 years of data evidencing that the vast majority of ESOP companies are high performing companies, with better benefits than non-employee owned companies. It concludes that Congress expresses its continued support for ESOPs.

To view additional information or read the text of H. Con. Res. 204, please visit the Library of Congress’s THOMAS page, http://thomas.loc.gov/. On this page, type H. Con. Res. 204 in the search bill summary and status box, click on bill number search below the box, and hit search.

“A commitment by Congress to a fair and more equitable form of ownership is important in the 21st century. On behalf of the nearly 2,500 members of The ESOP Association, I urge all members of Congress to co-sponsor this resolution,” said J. Michael Keeling, president of The ESOP Association. “Research has consistently shown that employee owned companies are high performing, have better sales, and provide more retirement savings compared to their non-ESOP counterparts. To have Congress express its continued support for ESOPs is important in the current economic climate.”

Six members of the U.S. House of Representatives co-sponsored the resolution:

Wednesday, October 21, 2009

Andrew Stumpff, an employee benefits law professor at the University of Michigan Law School and the University of Alabama Law School, along with Norman Stein, a Douglas Arant Professor of Law at the University of Alabama Law School, have recently written a piece for Tax Notes’s Shelf Project entitled – “Repeal Tax Incentives for ESOPs.” The article appears in the October 19, 2009 issue of Tax Notes. Professor Stein is a sought after advisor to the Congress on retirement savings policy, and is highly respected by staff policy makers in the Administration and the key Congressional tax committees.

Tax Notes’s Shelf Project is a collaboration among tax professionals to develop proposals to help Congress raise revenue without raising tax rates.

While a close read of the article reveals more of a dislike, or debunking if you will, of the economic theories of ESOP originator Louis O. Kelso, its bottom line is ESOPs do not improve company performance, do not increase wealth consistently, and therefore do not deserve to be ERISA plans nor have tax benefits.

According to their particular proposal, all qualified retirement plan would have to be well-diversified investments. Meaning that ESOPs would and should be subject to diversification rules and all ESOPs tax incentives should be repealed because as the authors state, “ESOPs represent bad public retirement policy…”

They provide four reasons for changing the tax policy to repeal ESOP tax incentives: (1.) ESOPs are not necessary to, and do not, increase workers’ wealth; (2.) Stock ownership does not improve worker productivity; (3.) The pain of underdiversification; and (4.) No reason to subsidize ESOPs.

None of the arguments are new. We’ve heard them all and sometimes, even more interesting ones. But we thought we’d take a deeper look into the reasons cited and provide our own analysis.

The idea that ESOPs do not increase the wealth of workers. The authors state that even workers without large amounts of capital are still able to make a living by working. But what about retirement? “Wow, I wish I could work until the day I die,” is not a statement one hears often or ever for that matter. Almost everyone tries to plan for retirement and ESOPs allow individuals that do not have access to large amounts of cash to invest in something that can help him/her prepare for retirement. The average account balance among ESOP Association members is $64,652.06 which is on par with the average 401(k) account average in the U.S. In addition, ESOP Association members report the average contribution the company makes to the ESOP each year, as a percentage of covered compensation, is 13% which is much higher than the 2 – 4% average one finds with 401(k) plans.

The idea that stock ownership does not increase worker productivity. We’re going to cite research and let is speak for itself.

In a 2007 paper titled, “Effects of ESOP Adoption and Employee Ownership: Thirty Years of Research and Experience,” Dr. Steven F. Freeman, Affiliated Faculty and Visiting Scholar in the Center for Organizational Dynamics, Graduate Division, School of Arts and Sciences at the University of Pennsylvania, confirms what the Association has been saying for years, that employee-owned companies experience increased productivity, profitability, and longevity.

The most comprehensive and significant study to date of ESOP performance in closely held companies was conducted by Dr. Joseph R. Blasi and Dr. Douglas L. Kruse, professors at the School of Management and Labor Relations at Rutgers University, and funded in part by the Employee Ownership Foundation. The study, which paired 1,100 ESOP companies with 1,100 comparable non-ESOP companies and followed the businesses for over a decade, reported overwhelmingly positive and remarkable results indicating that ESOPs appear to increase sales, employment, and sales/employee by about 2.3% to 2.4% over what would have been anticipated, absent an ESOP.

According to the 2009 Economic Performance Survey conducted by the Employee Ownership Foundation, 65% of survey respondents reported that productivity and motivation increased as a result of the ESOP.

In 1995, Douglas Kruse of Rutgers University examined several different studies between ESOPs and productivity growth. Kruse found through an analysis of all studies that “positive and significant coefficients [are found] much more often than would be expected if there were no true relation between ESOPs and productivity.” Kruse concludes that “the average estimated productivity difference between ESOP and non-ESOP firms is 5.3%, while the average estimated pre/post-adoption difference is 4.4% and the post-adoption growth rate is 0.6% higher in ESOP firms. Kruse cites two studies as part of his research: Kumbhakar and Dunbar’s 1993 study of 123 public firms and Mitchell’s 1990 study of 495 U.S. business units in public firms. Both reports found significant positive effects of greater productivity and profitability in the first few years after a company adopted an ESOP.

The idea that underdiversification causes pain. The authors state that “ESOPs are a terrible idea because they concentrate employees’ retirement finds in a single investment.” ESOP advocates respond that the worship of diversity is somewhat misplaced when applied to those of little wealth. Diversification arose in English common law as a policy for someone of wealth, or for a beneficiary of a wealth trust. To diversify a little bit make no sense for someone who has no wealth. All great wealth is created by someone focusing his/her attention on one economic activity. Mellon, Carnegie, Rockefeller, etc. did not become wealthy by putting $1,000 in steel, $1,000 in autos, $1,000 in oil, $1,000 in lumber, etc. In any event, the 1986 tax law mandated diversifying ESOP accounts up to 50% for those nearing retirement at age 55 and 10 years of service. Furthermore, evidence is overwhelming that ESOP companies are more likely to provide retirement plans, such as diversified 401(k) plans than non-ESOP companies. It must be remembered that 50% or so of American workers have no retirement plans where they work so the argument that underdiversifaction causes pain is truly a moot point.

Finally, the idea that ESOPs should not subsidized. The criticism arises from a view that the income tax system should be “neutral,” with no special rules to encourage an activity. These special rules, either tax exclusions, credits, deductions, or deferrals, are known as “tax expenditures.” The theory is that only a minority of taxpayers, or citizens, benefit from a tax expenditure while other taxpayers subsidize the few with high tax rates. It is estimated that the special tax rules for ESOPs amount to approximately a $1.7 to $2.0 billion tax expenditure for ESOPs annually. So the argument goes, ESOP tax expenditures benefit 11 million individual taxpayers out of approximately 200 million tax payers, and 12,000 corporations out of 4 million. At this level of effort, ESOPs are approximately the 149th largest Federal tax expenditure among approximately 165. (The precise numbers are not available because Congress and the Executive Branch have always disagreed over revenue estimates and definitions involving tax expenditures.) The amount is approximately less than .0005% of the national $15 trillion economy. The amount is approximately sixty one-hundredths of 1% of the annual Federal budget in the next fiscal year. To say elimination of ESOPs will lower taxes for tax payers not participating in an ESOP and for businesses without ESOPs for liability because they no longer subsidize the ESOP community, is actually a ridiculous proposition.

There is much more that we can discuss but we’ve covered the major points here.

Thoughts?

Wednesday, October 07, 2009

U.S. Congressman Erik Paulsen and Toll Company Re-Visit Employee Ownership and ESOPs

Toll Company, located in Plymouth, MN, met with U.S. Congressman Erik Paulsen in a dialogue on employee ownership and ESOPs on Aug. 5, 2009, at the company’s headquarters.

“We were delighted to discuss with Congressman Paulsen our ESOP story and the incredible impact it has had on our company, particularly its benefits during a weak economy,” said Jim Quicksell, president of Toll Company. “Without the ESOP, we would not exist, and would not be able to share the success of our company with the people who are the company and help make it successful.”

Paulsen and Toll Company employee owners discussed the importance of employee ownership through ESOPs. Toll Company stressed its employee ownership history, and how the ESOP affects the way of life at the company.

More than 40 people participated in the meeting. Congressman Paulsen represents Minnesota’s third district in the U.S. House of Representatives. The photo below is Congressman Paulsen (left) touring Toll Company with employee owners.

Tuesday, September 22, 2009

Number of MN/Dakotas Chapter Hill Visits Impressive

We’ve received numerous reports from ESOP Association members who have met with their member of Congress and we’ll be featuring more of these stories here in the next few weeks. If you host a meeting with your member of Congress, please send us an email and let us know – media@esopassociation.org.

Pro athletes are constantly judged by percentages. In baseball, hitting the ball 30% of the time is looked upon as a success. In football, winning half of your games might get you into the playoffs and in hockey and basketball it seems like everyone makes the playoffs. But these athletes can’t shake a stick at the success the MN/Dakotas Chapter recently achieved with their visits to Capitol Hill during the Annual Conference in May.

Chapter members lined up and visited with the offices of 11 of their 15 active members of Congress (At the time of these visits, MN was still trying to decide who their second Senator should be.) for a success rate of 73%. More impressive is the fact that during those 11 visits, 9 of them included the actual member of Congress. Members visited included the following: Senator Tim Johnson (D-SD); Senator John Thune (R-SD); Congresswoman Stephanie Herseth Sandlin (D-SD-at large); Senator Byron Dorgan (D-ND); Senator Kent Conrad (D-ND); Congressman Earl Pomeroy (D-ND-at large); Congressman John Kline (R-MN-2nd); Congressman Erik Paulsen (R-MN-3rd); Congresswoman Betty McCollum (D-MN-4th); Congressman Keith Ellison (D-MN-5th); Congresswoman Michele Bachmann (R-MN-6th).

A big thank you goes out to the members of the Chapter’s Government Relations Committee and the Chapter members who made this all happen. They are now busy lining up visits to ESOP companies when the members of Congress are home in August.

Thursday, September 17, 2009

Two House Ways and Means Democrats Introduce Pro-S ESOP Bill

The following Legislative Bulletin was sent out this morning by The ESOP Association.

ESOP Legislative Bulletin

Two House Ways and Means Democrats Introduce

Pro-S ESOP Bill

On September 16, 2009 Congressman Ron Kind (D-WI) introduced H.R. 3586, The S Corporation ESOP Promotion and Expansion Act of 2009, to improve and promote S ESOP laws. In general, the bill would: permit owners of S stock to sell their stock to an ESOP under the same treatment C stock of a private company receives under Internal Revenue Code Section 1042, also known as the ESOP cap gains deferred rollover provision; permit a lender to S corporations to exclude 50% of its interest income if the loan is used for a qualified employer securities loan, modeled after former IRC Section 133; permit an S ESOP to assume the estate tax liability of an estate if S stock of equal value is transferred to the S corporation ESOP; and establish a Federal program in the Department of Labor to encourage S ESOP creation. H.R. 3586 was co-sponsored by Congressman Earl Blumenauer (D-OR).

“The ESOP Association will urge Congress to enact this legislation to aid its 1,000 plus S ESOP members nationwide, and to promote the creation of more S ESOPs,” said Association President J. Michael Keeling. “We will continue to encourage enactment of new laws, such as S. 1612 by Senator Blanche Lincoln, to aid our approximately 500 C ESOP members as well our S ESOP members,” he added.

Association members are encouraged to not only watch their email boxes for more updates on legislative developments impacting their ESOPs, but also to urge their Representatives and Senators to be for pro-ESOP legislative and to stand against any proposals negative to ESOPs.

For more information on contacting members of Congress, download a copy of the Association’s Advocacy Kit.

Wednesday, September 16, 2009

Illinois ESOP Association Members Meet with Congressman Danny Davis

We’ve received several reports from ESOP Association members who have met with their member of Congress and we’ll be featuring more of these stories here in the next few weeks. If you host a meeting with your member of Congress, please send us an email and let us know – media@esopassociation.org.

On June 15, 2009, 32 members of the Illinois ESOP community had the opportunity to discuss the value of employee ownership, and specifically ESOPs, with Congressman Danny Davis (D-IL-7th) at an event hosted by SmithBucklin Corporation. Given his recent appointment to the House Ways and Means Committee, the Illinois Chapter made it a priority this year to establish a dialogue with Congressman Davis and his staff. Participating in this event were the following ESOP companies which are located, or who have employees who live in, the Congressman’s district:

Amsted Industries

Campbell & Company

Forsythe Technology

National Bureau of Property Administration

Pioneer Engineering

SmithBucklin Corporation

The collective efforts to share individual ESOP experiences with the Congressman made the event a resounding success. The program opened with a short presentation about ESOPs, followed by a group discussion. Participants had the opportunity to share some background about their organization, its ESOP, and some personal stories with Congressman Davis as to how their ESOP has positively impacted employees, particularly front line workers. Especially noteworthy, were the very moving anecdotes of two participants in the program who told Congressman Davis that as a result of the performance of their ESOP accounts, they were in a position now to allocate enough money from their regular savings to send their children to college.

In his own remarks at the event, Congressman Davis seemed to appreciate what a great tool ESOPs are to generate broad-based ownership of companies. The Illinois Chapter will look to continue building on that appreciation and maintain continuous contact with Congressman Davis and his staff to ensure our community has a new ESOP advocate on Ways and Means.

Wednesday, August 26, 2009

ComSonics Goes to Washington

Since legislation has been a recent topic here, we thought we would share a few stories from ESOP Association members who have visited with members of Congress. The following article ran in the July/August 2009 issue of the ESOP Report.

ComSonics, Inc. of Harrisonburg, VA sent their usual large delegation this spring to the Annual Conference in Washington, DC. However, they did not simply remain in the confines of the Conference hotel. Instead, they fought the battle of obtaining taxi service and trekked three different times up to Capitol Hill to visit members of Congress.

ComSonics’s main office is located in Harrisonburg, VA, with a manufacturing plant located just 15 miles south, so the bulk of the company’s employee owners are represented in the House of Representatives by Congressman Bob Goodlatte (R-VA-6th). Congressman Goodlatte has been a long time supporter of pro-ESOP legislation, having also represented ESOPs in his legal career prior to venturing into politics. The ComSonics group, joined by some attendees from Gala Industries in Eagle Rock, VA, ventured to the Rayburn House Office Building and visited with Congressman Goodlatte.

The ComSonics group then circled up early the next morning and ventured to the Russell Senate Office Building where they visited the newly minted Senator, Mark Warner (D-VA). Senator Warner was elected to the seat vacated by retiring Senator John Warner (no relation), and they were eager to provide first-hand evidence on why he should support employee ownership.

They then gathered again the following afternoon and trekked once more to the Hill, this time to the Canon House Office Building, where they visited with aides of Congressman Eric Cantor (R-VA-7th) from the Richmond, VA area. Although only a few of ComSonics’s employees live in Congressman Cantor’s district, they wanted to make contact because he sits on the all important House Ways and Means Committee. They were able to discuss the benefits of employee ownership with his staff and will be working with Richmond area ESOPs so they can make further contact with him.

A great deal of thanks goes to ComSonics’s EAC Vice-Chair Markita Madden. Several months prior to the conference, Markita took the reins of this project and made numerous phone calls, sent countless emails, and eventually organized all of the company’s visits.

As ComSonics’s employee owner T. Keith Robertson stated, “I encourage all Association members to find someone in your organization to serve as point person to organize legislative activities. To quote Pericles, ‘Just because you do not take an interest in politics doesn’t mean politics won’t take an interest in you.’”

Thursday, August 20, 2009

Advocating Employee Ownership Through ESOPs – GET ON THE BANDWAGON!

Want to know what you can do to help ESOPs? Download a copy of the Advocacy Kit from the website along with a copy of the Congressional Company Visit Kit and start reading.

The Advocacy Kit provides specific information on issues of interest to The ESOP Association and its members as well as step by step instructions for contacting a member of Congress and what to say. The Congressional Company Visit Kit walks through the reasons for hosting a company visit and how to go about setting one up with a member of Congress.

Both Kits can be found on the Association’s website at www.esopassociation.org. Check for direct links under the News link on the homepage.

Wednesday, August 12, 2009

Health Care Debate Muddies Water

This article originally ran in the July/August issue of the ESOP Report as the Washington Report. We wanted to share the column with blog readers as we thought it was very timely.

We also wanted to remind members that now is the time to speak with members of Congress about S. 1612, the ESOP Promotion and Improvement Act of 2009 introduced last week by Senator Blanche L. Lincoln (D-AR).

Two things: First, seldom does one’s issue literally push everything else to the back burner, despite what arm chair “experts” say, as the conventional wisdom is always that headlines on cable TV mean Congress is not doing anything else. The conventional wisdom is wrong 99.999% of the time. For example, the 1974 move by Congress to consider, and then vote on impeaching former President Richard Nixon was deemed by most superficial observers to mean Congress would not be taking action during that tense time on other legislative matters. No true, as ERISA was shaped during the impeachment debates of 1974, and not true today…except there is always an exception to the rule.

The legislative struggle over reforming health care in the U.S., a near two trillion effort, is truly sucking the air out of all the legislative committees of Congress that deal with ESOP laws, leaving uncertain how and when the tax and labor committees would ever turn to issues that would directly impact ESOP companies and ESOP creation.

Second thing to mention—no one knows what is going happen with the big push by President Obama and his allies in Congress to reform U.S. health care systems. To make the point: let’s assume it was legal to put on retainer President Obama, Speaker Nancy Pelosi [D-CA], Chairs of the Congressional tax committees, Senator Max Baucus [D-MT] and Congressman Charles Rangel [D-NY], not to lobby but to give insider information on when a new health reform bill would pass Congress, and what would be in the bill. Assume it was legal to pay each $1 million for this insider information. It would be submitted from this vantage point that whoever paid these people for the information would be disappointed as none of the above know when, and what, will pass Congress, if anything, reforming the U.S. health care system.

The point here is that ESOP advocates should never ever assume that the legislative agenda is known precisely, and therefore a prediction, or declaration of “don’t worry about negative ESOP proposals,” is never ever a smart position for ESOP advocates to take.

There is some good news, however, beyond the admonition to never let one’s guard down in the legislative fighting; this good news is that the House leadership has agreed that when the tax committees work later this year, or early next year, to reform the estate tax, and to do another one year hold at prior year levels for the individual alternative minimum tax trigger, the Ways and Means Committee will not have to “pay for” these two technical tax cuts.

So while the word to the wise is not to believe ever that ESOP law is not subject to a surprise attack by a tax committee looking for revenue, the general cloud on the horizon, as stated since the 2008 election, is the drive to lower the corporate income tax rate by repealing many corporate tax credits, deductions, and deferrals, of which the ESOP tax benefits are included.

Friday, August 07, 2009

New Pro-ESOP Promotion Proposal Introduced in Senate

We wanted to share with everyone the following email which was sent out by The ESOP Association this morning about new pro-ESOP legislation introduced by Senator Blanche L. Lincoln (D-AR) on August 6, 2009.

Additional information will be available on the Association’s website.

ESOP Legislative Bulletin

New Pro-ESOP Promotion Proposal Introduced in Senate

On August 6, 2009, Senator Blanche L. Lincoln (D-AR) introduced S. 1612, the ESOP Promotion and Improvement Act of 2009. The legislation has four sections, including an entirely new proposal to remove a 35 year bias against ESOP companies by the Small Business Administration.

One, S. 1612 would repeal the punitive 10% penalty tax on S corporations distributions from current earnings, also referred to as dividends, placed on the distributions from current earnings that are passed through to ESOP participants in cash.

Two, S.1612 would clarify that dividends paid by C corporations on ESOP stock are not a preference item in calculating the corporate alternative minimum tax.

Three, S. 1612 improves the 1042 ESOP tax deferred rollover provisions by (a.) permitting sellers to the ESOP of an S corporation to utilize the ESOP tax benefit referred to as the tax deferred rollover, or the so-called 1042 treatment; (b.) permitting proceeds received from a 1042 transaction to be reinvested in mutual funds consisting of operating U.S. corporation securities; and (c.) redefining what is a 25% owner, for purposes of IRC 1042, as a 25% owner or more of voting stock, or 25% owner or more of all stock of the corporation, instead of current law definition that owning of 25% of any class of stock is a 25% owner for purposes of IRC 1042.

And, four, S. 1612 would eliminate a bias against majority owned ESOP companies by making clear that a non-ESOP small businesses currently eligible for any Small Business Administration program is still eligible for the SBA program if becoming a majority owned ESOP company with the same characteristics it had before becoming a majority owned ESOP company. (A majority owned ESOP company is 50% plus owned by the ESOP on behalf of the employees.)

Senator Blanche Lincoln is the senior Senator from Arkansas elected in 1998 and as the fifth ranking majority member of the Senate Committee on Finance, chairs the Social Security, Pensions, and Family Policy Subcommittee.

Senator Mary L. Landrieu (D-LA) is an original co-sponsor. Senator Landrieu is chair of the U.S. Senate Committee on Small Business and Entrepreneurship as an original co-sponsor.

The comments addressed very technical issues related to the appropriate actions by an ESOP sponsor to comply with all laws and regulations under the enforcement jurisdiction of the Department of Treasury and IRS with regard to tax qualified, deferred compensation plans. If you would like a copy of the comments submitted by the Association, please send an email to media@esopassociation.org. A copy of the comments can be found on The ESOP Association’s website at – http://www.esopassociation.org/pdfs/L&R_Memo_to_IRS_6-30-2009.pdf.

“I express appreciation for the professionalism and openness of the both the IRS personnel and Treasury personnel to work on enforcing the laws and regulations with regard to the creation and operation of employee ownership through the ESOP model,” said J. Michael Keeling, president of The ESOP Association.

Wednesday, July 29, 2009

August Recess is Approaching – Time to Setup a Meeting with Your Member of Congress

August means one thing in Washington, DC – summer recess for members of Congress. In August, every member decamps for home and this is a great time to setup meetings and invite your member of Congress to visit your company. There’s no greater way to show a member the power of an ESOP than to have he or she visit your company and see firsthand.

If you would like information on how to setup a meeting, visit The ESOP Association’s website and download a copy of the Congressional Company Visit Kit: Practical Steps for Unparalleled Results – http://www.esopassociation.org/. It is available on the homepage under News.

Having a member of Congress visit your company is one of the most important government relations activities you can undertake. It is that the most effective activity for obtaining support for ESOPs from a member of Congress. The company visit is more effective than a visit in the member of Congress’s home office and certainly more effective than visiting with a member of Congress in Washington DC.

Has member of Congress been to your company? Tell us about the visit.

Tuesday, July 21, 2009

ESOP Association Board of Directors Endorse H.R. 692

At its most recent Board meeting, the Board of Directors of The ESOP Association endorsed H.R. 692 which would amend the Internal Revenue Code of 1986 to exclude from gross income compensation received by employees consisting of qualified distributions of employer stock.

Congressman Dana Rohrabacher (R-CA) introduced H.R. 692 on January 26, 2009. Essentially, the bill would exempt from tax the value of company stock paid directly to an employee if the employee holds the stock for at least 10 years. This proposal would be most suitable for a publicly traded company. As such, H.R. 692 is the first to encourage employee ownership in a publicly traded company since a 2001 law. The 2001 law expanded the federal tax deduction for dividends paid on ESOP stock to permit a deduction for dividends reinvested by the employee back to the plan to acquire more company stock.

Wednesday, July 15, 2009

ESOP Association Members Make Trip to Capital Hill During Annual Conference in May

During this year’s 32nd Annual Conference in Washington, DC, ESOP Association members took time out of their schedules to visit Capital Hill and meet with Senators and Representatives to discuss ESOPs and employee ownership.

With the start of the 111th Congress, these visits play a vital role in helping to spread the employee ownership message and to remind Senators and Representatives of the concerns and hopes of our community. Building a foundation of support among members of Congress will help to counter any unfavorable opinions of ESOPs and, if necessary, to defeat negative proposals.

Members of the Wisconsin Chapter met with staff from the offices of both Senators from their state – Senator Herb Kohl (D-WI) and Senator Russ Feingold (D-WI).

In Senator Kohl’s office, the Chapter met with an advisor who deals with issues relating to pension plan benefits. According to a report from the Chapter, the Senator’s office had not given much thought to ESOPs but Chapter members took the opportunity to educate the staff and are hopeful that if any proposals are offered which are negative toward ESOPs, they would be able to win support from the office.

In a meeting with Senator Feingold’s office, the Chapter found the Senator’s tax policy director very knowledgeable about ESOPs and willing to hear from Association members on the impact of any tax policy on ESOPs. The Senator joined the meeting and agreed to listen to concerns and said he would take a close look at laws encouraging ESOPs. The Chapter felt the Senator was open to supporting policy that encourages broad-based ownership and the members plan to stay in touch with the office on ESOP issues.

As Sandra Paavola, of Enterprise Services, Inc. and Vice President of the Wisconsin Chapter, stated: “Overall, we were pleased with the results of the visits; they provided a reminder of how critical it is that we not take the current legislation benefiting ESOPs for granted. We need to constantly remind our representatives in Washington how great employee ownership is for their constituents, keeping this issue on the top of their minds as debate begins about raising new tax revenues. It is up to all of us to advocate the issues that impact the ESOP community, and we must all make a commitment to create opportunities to talk about the benefits of ESOPs to our Senators and Representatives.”

Thank you to Ms. Paavola for sending a report of the Chapter’s activities to the Association.

R.E. Kramig & Co. Inc., of Cincinnati, OH also met with their Congressman while in town for the Conference. An email from Andrew J. Kulesza, treasurer and CFO, had this to say about the company’s visit: “Since I was already at the conference, we flew up three ‘Main Street’ employees to meet with the Freshman Democrat Congressman of Ohio’s 1st District, Steve Driehaus (D-OH). We were hoping that this would allow him and his staff to see how beneficial ESOPs are to the base he and the current administration are trying to support.”

If your company or members of your Chapter had the opportunity to make a visit to Capital Hill, please share your experiences and photos – media@esopassociation.org.

If you would like additional information on how to set up a meeting with your member of Congress, please visit The ESOP Association’s website at www.esopassociation.org. Links to the 2009 Summer Advocacy Kit and the Congressional Company Visit Kit are available on the homepage under News.

Thursday, May 21, 2009

View of Employee Ownership from the Hill

The employee ownership community is very excited about new projects and advancements such as: the Rutgers University Employee Ownership fellowships program, the establishment of an Employee Ownership Chair at Rutgers University, and the work of the Aspen Institute’s Center for Business Education Caseplace.org project. In addition, there were no negative ESOP proposals in the Obama Administration’s budget and of late, there have been no hints at Congressional action against ESOPs.

BUT, sometimes, something very small can be a real eye-opener. Roll Call (www.RollCall.com/missionahead), a Washington, DC newspaper that is read by members of Congress and their staffs, recently ran a special section called “The Future of the American Worker.” It featured columns regarding current policy debates and opinions about what the future holds. In none, NONE, of the columns in the section was employee ownership mentioned. There was discussion of worker empowerment, businesses becoming more employee oriented but no word on employee ownership.

It just goes to show that we still have far to go. Yes, there are many great projects focusing on employee ownership in the works and we are proud of what we have accomplished so far, but making in roads with members of Congress, their staffs, and thought leaders of national media, academia, and think tanks is still a challenge this community needs to focus on.

Tuesday, January 06, 2009

New 111th Congress: Uncertainty for ESOPs.

Prescription for Action—the Tried and True

The 111th Congress, First Session, of the United States of America, begins today, January 6th. [Despite common understanding, the word “congress” applies to both the Senate and House of Representatives, even though the public calls their Representative in the House a Congressman, Congresswoman, or even Congressperson, and their Senator, “Senator”.]

Under our Constitution, each Congress lasts two years, at which time all members of the House stand for election, and one third of the Senate does, as a Senate term is six years, and a House term is two years.

You might think all of this “procedural” talk wastes your time as an ESOP advocate, but just as in your company, if you do not understand the rules and policies you will make mistakes both for yourself, your colleagues, and your company.

For example, the pro-ESOP legislation introduced in the 110th Congress, which was 2007 and 2008, is no longer; it does not exist anymore. Thus, pro-ESOP advocates cannot ask their Representative or Senators to “support” S. 1322 by Senator Lincoln [D-AR], or H.Con. Res. 333 by Representative Hinchey [D-NY], or H.R. 6419 by Representative Rohrabacher [R-CA]. If these Representatives and Senator Lincoln introduce pro-ESOP legislation in 2009, their proposals will have new numbers.

For example, there are new members of the key tax committees of Congress, on both the Senate and House side, among both Democrats and Republicans.

Some ESOP advocates for the first time will have their Representative or Senator be a key decision maker on ESOP proposals, both pro and con, whereas some ESOP advocates who have diligently cultivated the pro-ESOP message with a member of Congress from their area will now not have a direct pipeline to a key member of the tax committees.

ESOP advocates who are “dyed in the wool” pro-Republican will be frustrated when your government relations agents in DC tell the truth that in today’s world, it will be the Democrats on the tax committees that make the final decisions, and Republican allies will only have “influence” if given the chance to express an opinion behind closed doors.

But even with the new Congress, new members, new challenges, some things will not change, including how to have the ESOP position “win.”

Never has the ESOP position, since the retirement of former ESOP godfather Senator Russell Long retired, been “won” in Washington, DC.

It will be won in the cities, and towns of America, only if ESOP companies, both leadership of the companies, and hopefully average pay employees, directly present the story of how the ESOP works positively in their communities in the cities and towns where they live—I mean directly to the member of Congress when he or she is home.

Never ever forget Senator Long’s words of wisdom – the most important thing to a member of Congress is being elected; and the second most important thing is being re-elected.

But this does not change either—members of Congress are people just like you. They do not respond favorably to someone who acts as if he or she is “entitled” to tell the member of Congress what “works” for them. Since the days of Plato, there has been an age old argument – does a representative in a Republic only vote the way the majority of people he or she represents wants, or does the representative have a higher duty to do what he or she sincerely believes is best after review of data and information that citizens do not have, or have no time to review. [Interestingly, there is a buzz among internet fans that in the 21st Century all citizens will have access to the same information as elected representatives, and therefore the relationship of representative to the represented will change. In this camp, having read the blogs, and the mean spirited and often crude remarks made by “educated” internet users, I hope not.]

So, ESOP advocates, if you can’t be civil around politicians, and respectful, leave the hands-on lobbying to others.

Finally, be armed with a plan. Have a specific request. Do not waste a member of Congress’s time, just like you do not want some salesperson to waste your time.

Advocacy and marketing 101 are the same. If you wonder how to lobby, just read the classic Dale Carnegie How to Win Friends and Influence People. Then learn what the pro ESOP agenda is, be it an offense for new and better ESOP laws, or the defense to stop bad ESOP proposals.

In this regard, keep an eye on The ESOP Association’s website for the advocacy kit, and breaking news.

Yes, today the 111th Congress begins; but never forget the more things change, the more they stay the same.

2008

Monday, November 24, 2008

[Note: Below are remarks delivered by ESOP Association President, J. Michael Keeling, at The ESOP Association’s 2008 Las Vegas Conference and Trade Show on November 14, 2008, on the impact of the Presidential Election. All rights reserved by The ESOP Association.]

I gave similar remarks as I give today in 1992, 1994, 1996, 1998, 2000, 2002, 2004, and 2006; never have I faced such a conflicting set of thoughts in crafting my remarks, such hesitancy, and even worry that my remarks will not help our ESOP community win our cause on Capitol Hill. I worry that all the wonderful progress our Foundation is building to make America aware of the power of employee-owned companies will be for naught, as my remarks may cause pessimism, and loss of hope.

But it would be wrong not to say what I think. I have a fiduciary duty to you, members of The ESOP Association—the best group of business people in America, the most progressive group of business leaders in America—not to tell you what I see for our ESOP cause in our nation’s capital in the year 2009, and even beyond in 2010.

Before I do, let me make it clear that, while it may be an old man’s feeble mindlessness—I believe in our democracy. I believe, that except for a few bad apples, the men and women who serve in Congress are good people.

I believe the men and women who work for President Bush are good people.

I believe the men and women who work for, and will work for President-elect Obama, are good people.

I believe the men and women who work for Senator McCain are good people.

If you disagree, then I have to disagree with you.

I cannot demonize our people, our Congress, our President, as the 24/7 cable news people do, or as the bloggers do.

Let me say, I have always enjoyed working for the Board of The ESOP Association, because as advocates of employee ownership that believe in the people, therefore believe that we will move forward with decency, not bile, not negativism.

Let me say, in the 30 year history of lobbying by The ESOP Association, we have never lobbied in an “us versus them” vain, with a negative story, but always with a positive attitude.

But reality is reality.

When I think of the 2008 election results, the major thought I have is Yogi Berra’s observation:

“This is déjà vu all over again.”

May I be personal? I grew up in Deep East Texas—where the style and culture was the same as the old South of plantations, slavery, and Jim Crow laws, in fact, and in practice.

I was the product of a segregated high school. My father served on the City Council, and had to struggle to have the streets paved in the part of town that was derisory called “the colored section,” and he had to struggle to get the City Council to buy chicken wire for a back stop for the only baseball field, that had no grass, in the so-called “colored section” of town.

As so many Americans of my background feel, Senator Obama’s election is n amazing tribute to the wonderful, majority make-up of America.

For me, the most brilliant moment of the campaign was when my son, 30 years old, said to me on election night, “When my friends and I talk about Senator Obama, we never talk about his race.”

Having said all of this, what the election results say to me is –

We are back to the 80s.

In 1984, we, the ESOP community had to fight for our lives in the House tax committee, the House Ways and Means Committee; we had to fight for our lives in 1985; we had to fight for our lives in 1987; we had to fight for our lives in 1989.

And while we had to fight for our lives, we won more often than we lost.

We survived.

The House Ways and Means Committee in the 80s was controlled by the Democrats—just like in 2009/2010.

So you say — if there are threats to ESOP law, will we not win more than we lose, again?

First, will there be threats to ESOP law, and they will be different from the threats of the 80s.

The threats are clear –

One Congress will have to tend to major tax legislation in 2009/2010. Some say there were no big major tax bills in 2007/2008, why should there be such a bill, or bills, in 2009/2010?

Here are the reasons:

The current tax rate for capital gains will expire at the end of 2010, and go back to levels of the 20th Century.

The current tax rate for dividends will expire at the end of 2010, and go back to levels of the 20th Century.

After a one year repeal of the estate tax, it will revert to the levels of the 20th Century.

Congress must do something about the individual Alternative Minimum Tax that will soon tax couples making $75,000 or more to taxes in addition to their regular taxes. Let me say, in this day and age of two income families, $75,000 is not a high income for a wife and husband trying to raise a family, and make ends meet.

President-elect Obama has pledged to make major changes in the current Federal tax laws.

Two, let us not forget, the Chair of the House Ways and Means Committee, the most powerful person in America with regard to Federal tax law, has proposed, and is serious about a major overall tax reform effort. In 2007, he introduced a blue print for such a tax reform bill. For those who assumed his tax reform positions would go away, they have no sense of how the tax legislation process works. His 2007 positions are not vanishing in thin air, never to be heard of again.

And as you know, his 2007 tax reform proposal contained a very negative S ESOP proposal, that I will not go into detail about now, but which let me say would end basically all non-qualified deferred comp in an S ESOP, thus making it impossible for an S ESOP to compete for leadership in top executive positions.

To understand why ESOP law would be in the mix, you have to understand that there is a growing consensus, a bi-partisan consensus, that the Federal corporate tax rate on C corporations should be reduced, anywhere from 6 to 10 percentage points.

The Republicans are for this reduction because it jives with their core values that taxes should be lower; the Democrats are tilted for this alteration because some do believe our Federal tax rate is too high, and others see the rate reduction as a tactic to get the Republicans to support tax reform proposals that Democrats desire.

In fact, both Chair Rangel’s tax reform bill, and a Treasury Department proposal call for a reduction in the corporate tax rate.

And here is what is important, both propose that the rate reduction decrease in revenues be paid for elimination of so-called corporate tax “loopholes,” and this is where ESOP law comes into the picture.

Chair Rangel has put forward a proposal that says the S ESOP use of non-qualified deferred comp is a tax loophole; the Treasury Department says all ESOP tax benefits are loopholes that should be eliminated. [The Congressional Budget Office has said the same thing by the way.]

But there are more changes in comparison to the 80s.

The collapse of the stock market has triggered a “war” on 401(k) plans specifically, and on defined contribution plans in general

The drumbeat from the leaders of the two House committees with jurisdiction over ERISA plans is that all retirement savings plans should not have any risk, that all private sector plans should be like defined benefit plans. [The two committees are the House Ways and Means Committee, and the House Education and Labor Committee.]

These leaders are joined by prominent media pundits, such as Jane Bryant Quinn, a nice person who I spoke with just recently about ESOPs, but who says, “An employee who works for a company with an ESOP should find another job,” and her remarks go along with what we have read in national newspapers recently, which is, “the stupidest thing a person can do is own stock in the company where they work.”

What is an ESOP? It is defined contribution plan, primary invested in one asset, employer stock. So efforts to change defined contribution plans, to limit risk to almost zero, will reverberate against ESOP’s standing in the law.

We must be aware of the overall current rants against 401(k) plans, and defined contribution plans.

What do we know about President-elect Obama’s view of ESOPs?

All we know is what was written in a letter to Illinois ESOP advocates in 2005. In this letter, he express a generalized recognition that employee ownership, and ESOPs can be positive, and have some kind of role in our nation. But he concludes that recent examples of ESOP companies going under trigger a thought that perhaps ESOP law needs change to prevent too much risk.

What I now say is pure speculation on my part, but I do not believe I am too far off the mark. As an elected official representing Chicago in the Illinois State Legislature, and in the Congress representing the rest of Illinois as well, President-elect Obama has to have had many an employee of United Airlines complain about the United ESOP. He has to have heard complaints from the failed Peoria company, Foster and Gallagher, and as a former law professor at the University of Chicago, the many law suits arising there from.

What about the early news of those on his transition team of economic advisors?

In the 80s one worked for a U.S. Senator, and told me in no uncertain terms that ESOPs are flim flam.

It is rumored that perhaps the new Secretary of Treasury will be Lawrence Summers who vigorously opposed former Senator Breaux’s pro-S ESOP position in 1999 and 2000.

Reading through the tax policy team of the President-elect’s transition office, I see only one person who comes from a background that was pro-ESOP.

Here is also what is different from the 80s.

In the 80s we had a friend in the White House for ESOPs: President Ronald Reagan. Whenever the negative ESOP view would surface in the Treasury Department in the 80s, I can assure you that the word from the White House set the men and women at Treasury straight on ESOP law.

But even more important, we had friends of ESOPs among the Democrats who served on the House Ways and Means Committee in the 80s: Beryl Anthony, Jake Pickle, Charles Rangel, Jim Jones, L.F. Payne, and others.

Today, right now, we do not have one Democrat on Ways and Means who we can be sure will lead the charge to protect ESOP law, or to expand ESOP law, when the tax bills of 2009 and 2010 are written in that Committee, keeping in mind what that Committee does represent, based on past data, 80 to 85% of what becomes law.

We must move more Democrats to be for ESOPs.

We must persuade Democrats on Ways and Means to be for ESOPs.

If your member of Congress is a Democrat, but does not serve on Ways and Means, ask her or him to convey to her or his colleagues on Ways and Means a pro-ESOP message.

We have already had progress in this regard — our New England friends have met with nearly all House members in New England, all of whom are Democrats now. Some are members of Ways and Means.

Our California ESOP leaders have met with key Democrats on Ways and Means who are from California.

We have had a business with interests in Tennessee liaison for ESOPs with a member of Ways and Means from Tennessee.

An ESOP advocate in North Carolina persuaded his Democratic member to call directly the Ways and Means staff about the negative S ESOP proposal.

And if your member of Congress is a Republican, continue to persuade her or him to be for ESOPs, and to convey that view to the top Republican member on Ways and Means, who Chair Rangel will listen to on tax issues that are not “super” issues, and the ESOP issues are not at this time “big-time, super” issues in Ways and Means.

And let us not be only on the defense.

In 1990, our former super Champion on Ways and Means, Beryl Anthony, said that we had to be on the offense, as a good offense is the best defense. He said by putting forward pro-ESOP proposals we would uncover those members of Congress who would stand up for ESOPS.

We will be on the offense, and we will try to get men and women to say, “Yes, I support more employee ownership through ESOPs, by publicly endorsing pro-ESOP proposals.”

We need you to ask for that support once our current ESOP champions introduce pro-ESOP legislation.

Let us be bold for more employee ownership through ESOPs.

Let us not intend to fail, even in this time of uncertainty.

Let us remember we are in the push for ESOPs for the long term.

We can win; we will win with you and your company’s help.

Thank you.

This article originally ran as the Washington Report in the November 2008 issue of the ESOP Report.

Wednesday, November 05, 2008

2008 Election and ESOPs

Well, we didn’t want to neglect mentioning the important and historic election which took place yesterday, but we also didn’t want to give away too much by talking about the results of the election in this space.

There are many things we can say, many things we can speculate about, but we are not going to. Why? Next week at The ESOP Association’s Las Vegas Conference & Trade Show, Association President J. Michael Keeling, will be talking in detail about the election and what it may mean for ESOPs and employee ownership in the coming years.

We are going to leave a few things unsaid until that time but – WE WANT TO KNOW WHAT YOU THINK!

Tell us what you think is in store for ESOPs and employee ownership under President Elect Barack Obama.

Wednesday, October 22, 2008

Government Relations Activities

Yes, we know you know, but are you DOING?

It’s an election year, and we realize you might well be sick and tired of us talking about this, but we are going to say it one more time – get out there and talk to your members of Congress!

We need an army of employee owners to interact continuously with elected officials to prove that pro-active positions for employee ownership and ESOP laws will improve America’s economy in a way that is fair to all wage earners.

Many leaders are cynical when it comes to employee ownership through ESOPs. We need to show them what it really means to be employee owned and what they can do for a company.

House Concurrent Resolution 333 – This short resolution makes it clear that, based on 33 years of experience with ESOPs the vast majority of ESOP companies are high performing companies and the Congress therefore expresses continued support for employee stock ownership plans.

September 23, 2008 (Washington, DC) – Today, The ESOP Association was pleased to receive a statement by Republican Candidate for President, Senator John McCain, declaring his support for employee stock ownership through the employee stock ownership plan (ESOP) model. This statement was conveyed to The ESOP Association by a Senior Policy Advisor to the McCain-Palin Campaign. It reads as follows:

“For millions of Americans owning a stake in the company they work for is extremely rewarding. Many Americans are able to “work for themselves” through their participation in Employee Stock Ownership Plans (ESOPs). These broadened ownership plans allow American workers the ability to participate directly in the growth and success of the companies for which they work.

About 90 percent of ESOPs are in small businesses with less than 500 employees. We all know that small and entrepreneurial businesses are the lifeblood of the American economy. These businesses that are often unable to match the substantial health care and other benefits that are normally provided by major corporations, due to the cost, are able to provide employees increased retirement benefits and stable employment because of ESOPs. Research has shown that ESOP-owned companies are usually more productive and profitable than other companies, as well as having better survival rates.

For these reasons, I am proud to support ESOP-owned companies and the role they play in the American economy. As President, I would endorse efforts to learn from the successes of ESOP companies and see how their positive impact can be expanded.”

The President of The ESOP Association, J. Michael Keeling, had this comment in response to Senator McCain’s statement:

“Senator McCain’s statement will be welcomed with gratitude by the ESOP community. The Senator is the first candidate for the highest office in our nation to endorse employee ownership through an ESOP and to pledge support for these important national polices since former President Ronald Reagan. Senator McCain’s statement wasn’t demanded by any interest group or spurred by any questionnaire. He is committed to these goals, and The ESOP Association will share his statement with its 2,500 members and the one million ESOP participants working for Association members. Again, I emphasize that The ESOP Association welcomes Senator McCain’s commitment to this cause.”

The core cause of The ESOP Association is the belief that employee ownership will improve American competitiveness, increase productivity through greater employee participation, and strengthen our free enterprise economy.

###

Wednesday, July 30, 2008

Do You Really Know Who Supports Employee Stock Ownership?

The now famous Texas Congressman Ron Paul [R-TX] has consistently put his name on the line for employee stock ownership since he came to Congress in 1989. Most recently, he signed on to H.R. 6419 by Congressman Dana Rohrabacher [R-CA] that essentially would make broad based stock compensation plans tax free. Among insiders who keep track of those that support ESOPs and employee stock ownership, there is no doubt where Congressman Paul stands.

But there is a great deal of confusion about who in Congress really supports more employee stock ownership. Experience teaches that many ESOP advocates assume that her or his Congressperson, or Senator, is a friend of employee stock ownership because she or he was nice when they visited their office in DC, or when they visited at a civic club or town hall meeting.

A nice remark about employee stock ownership, however, is not good enough, as what employee ownership advocates need to protect stock programs such as ESOPs is more than nice words, and a pat on the back. A member of Congress needs to stand up for employee stock ownership, just as Congressman Paul, and Congressman Rohrabacher have done year after year by signing on to pro-ESOP, or pro-employee stock ownership proposals. And on the key committees, a vote for the pro-ESOP position, or a speech in public, before the press and colleagues, also qualifies as a true pro-employee stock ownership position.

Men and women elected to Congress, as a rule, are great “people” people; they are charming, gregarious, and know how to make other human beings feel good. But the key to judge by is, “Are they intense for employee stock ownership? Is employee stock ownership a priority?” If not, ESOP advocates should appreciate someone being nice when they visit, but nice does not deliver the goods.

Frankly, from 1980 through 1986, support for ESOPs and employee stock ownership in Washington was limited, but very, very deep, as it consisted mainly of the Chair of the Senate Finance Committee, Senator Russell B. Long, and the President of the United States, Ronald Reagan.

From 1986 through 1989, ESOPs had to rely on a handful of members to save ESOPs, such as Congressman Beryl Anthony [D-AR], Senator Max Baucus [D-MT], the aforementioned Congressman Rohrabacher, and Congressman Cass Ballenger [R-NC].

From 1989 through 2000, support for ESOPs was very wide, but shallow, as at one time over 100 members of Congress in the early 90s co-sponsored pro-ESOP legislation.

In recent years, we are unsure who among the majority party in Congress will really stand up with intensity and push to promote employee stock ownership. We are making progress, but there is not a comfort level that any Democrat in Congress would fight for employee stock ownership.

Do you know how your member of Congress and your Senators feel about employee stock ownership? Would they publicly take a stand to promote and protect employee stock ownership?

In other words, are they like Congressman Ron Paul who will openly take a public stand for employee stock ownership? Or are they just being nice to you?

Thursday, July 17, 2008

August Recess is Approaching – Time to Setup a Meeting with Your Member of Congress

August means one thing in Washington, DC – summer recess for members of Congress. In August, every member decamps for home and this is a great time to setup meetings and invite your member of Congress to visit your company. There’s no greater way to show a member the power of an ESOP than to have he or she visit your company and see firsthand.

If you would like information on how to setup a meeting, visit The ESOP Association’s website and download a copy of the Congressional Company Visit Kit: Practical Steps for Unparalleled Results – http://www.esopassociation.org/. It is available on the homepage under News.

Having a member of Congress visit your company is one of the most important government relations activities you can undertake. It is that the most effective activity for obtaining support for ESOPs from a member of Congress. The company visit is more effective than a visit in the member of Congress’s home office and certainly more effective than visiting with a member of Congress in Washington DC.

Has member of Congress been to your company? Tell us about the visit.

Wednesday, July 09, 2008

Presidential Candidates and ESOPs

As the Presidential Campaign unfolds, many ESOP advocates have asked about the nominees’ position on ESOPs. We do not have a written statement or any other evidence from Senator John McCain on his view of employee ownership through ESOPs, but we do have a 2005 letter from Senator Barack Obama which we have posted below. The letter was written to several of The ESOP Association’s members in Illinois, when they wrote to him asking that he co-sponsor Senator Blanche Lincoln’s pro-ESOP bill, S. 1322, The ESOP Promotion and Improvement Act of 2007.

Congressmen Maurice Hinchey (D-NY) and Dana Rohrabacher (R-CA) introduced on April 24, 2008 House Concurrent Resolution 333, which expresses continued support for employee stock ownership plans (ESOPs) in the U.S.

J. Michael Keeling, President of The ESOP Association, had this to say about the Resolution: “I welcome the bi-partisan efforts of Congressman Maurice Hinchey (D-NY) and Congressman Dana Rohrabacher (R-CA). The leadership of these House senior members to reiterate the thirty plus years of support for employee ownership through ESOPs is important. Clearly change is in the wind but a commitment by Congress to a fair and more equitable form of ownership is as important in the 21st century as in the 20th. On behalf of the 2,500 plus members of The ESOP Association, I urge all members of Congress to co-sponsor this resolution. Research has consistently shown that employee owned companies are high performing, have better sales, and provide more retirement savings compared to their non-ESOP counterparts.”

To view a copy of House Concurrent Resolution 333, please visit the Library of Congress THOMAS page, http://thomas.loc.gov/. On this page, type H. Con. Res. 333 in the search bill text box, check the bill number box, and hit search.

Friday, April 18, 2008

S. 1322 – The ESOP Promotion & Improvement Act of 2007

Now is the time to act!

The ESOP Promotion and Improvement Act of 2007 was introduced earlier this year by Senator Blanche Lincoln (D) of Arkansas.

Now is the time to contact your Senators and talk to them about this legislation. In light of the legislation introduced by Representative Charles Rangel, now is the time to reach out to your member of Congress. Contact their office and ask to arrange a visit to your company. If you can’t arrange a visit to your company, make an appointment to go see them, or send a letter from the employee owners telling him/her why the ESOP is so important to your company and employee owners and what they can do to keep these jobs in their community.

Wednesday, April 09, 2008

Progress, But No Victory, No Let Up

This article originally ran as the Washington Report column in the March 2008 issue of the ESOP Report. We thought it was worth a reprint on the Employee Ownership Blog. It has been edited for space but the message is the same.

For several months after the publication of the tax reform legislation introduced by the Chair of the House Ways and Means Committee Charles Rangel [D-NY] it seemed many ESOP company leaders felt its small provision on S ESOPs was not of any concern.

There is progress in turning this impression around, as more and more S corporations with ESOPs are realizing that if Chair Rangel’s provision became law, it would have a significant negative impact on their ability to compete, and on the likelihood of new S ESOPs being created by seller financing, or mezzanine financing. [The precise provision is Section 3701 of H.R. 3970, introduced last October.]

And as this impression grows of the potential negative impact if Section 3701 becomes law, more and more ESOP advocates are voicing their concerns to offices of U.S. Representatives.

This fact represents progress in making sure the S ESOP laws remain usable and attractive for the development of more employee ownership in America, and for the successful operation of current S ESOP companies.

As a result of more companies expressing their views to their elected members of the House of Representatives, agents of The ESOP Association were asked to give more detail to top tax lawyers/staffers of the House Ways and Means staff. These views were given, but no views were changed.

Worst Case Scenario: When running conducting a legislative advocacy campaign, the best planning is to do worst case scenario planning. With regard to Section 3701, the worse case scenario is that this anti S ESOP provision is not held back by Chair Rangel for consideration in 2009 or 2010 as part of a massive tax code overhaul, but that it is taken up tomorrow as part of some relatively small tax bill, say dealing with agriculture, or stimulating the economy, and similar provision in order to raise revenue that would pay for the tax cuts in the smaller tax bill.

There is a general rule of thumb that once a tax law change is introduced by the Chair of the House Ways and Means Committee, and has been “scored” as they say in the tax legislative process, meaning an estimate has been made as to how much new tax money the provision will raise, that proposed change becomes fair game for any member of the Committee to propose to pay for her or his pet tax cut idea. [Please see page 1 story on how The ESOP Association has joined other benefits groups to alter Congressional policy that assigns big tax loss numbers to retirement savings tax laws.]

So, there is no reason for the ESOP community to sit around “waiting” for tax reform to tell their member of the U.S. House that they do not like Section 3701.

It should be done today, if not sooner.

The Association’s website has all the ammo needed to make the case against Section 3701, both under the News topic related to a Congressional visit to an ESOP company, and under the News topic labeled “Advocacy Kit.”

To repeat, despite evidence that some members of Congress have registered concern about Section 3701 to the House Ways and Means, there is no evidence that the leadership of the Ways and Means Committee is willing to alter the provisions of Section 3701. The provision, as introduced, can be so harmful our ESOP community should not wait to see if it will be considered. It could be considered at any time.

Wednesday, February 06, 2008

Ownership Society Back in the News

It’s election time again, in fact, that’s all the media are talking about at the moment.

Thanks to the upcoming election, the term “Ownership Society” has made its way back into the national lexicon. Yes, candidates once again wooing you for your vote are tossing about the term as a cure all for our nation’s healthcare system, retirement savings, and home ownership mortgage crisis. But does it mean anything to the employee ownership community this time around?

A few years back, the employee ownership community was quite enthralled to hear the term being used by President George W. Bush but, unfortunately, the thrill was short lived when the discussion turned out to be only about home ownership and healthcare.

Do you think this time around there will be more discussion about making employees in the U.S. real owners in the companies where they work or just another campaign promise?

What do you think the employee ownership community needs to do to change the debate?

2007

Tuesday, December 04, 2007

Should S ESOPs Care About Proposed S ESOP Law Change?

A message from ESOP Association President, J. Michael Keeling.

Ever since the Chair of the House Ways and Means Committee Congressman Charles Rangel

(D-NY) introduced H.R. 3970, the “Tax Reduction and Reform Act of 2007”, containing Section 3701, which would create a new Internal Revenue Code Section 409B, the ESOP community seems to be yawning, saying “So what”.

Well, maybe I exaggerated; but compared to the legislative threats against ESOPs in the 80s and early 90s, the interest of ESOP company leaders in proposed IRC §409B seems very lukewarm.

We have to ask ourselves why? This question is certainly relevant to ask S ESOP company leaders.

(To explain to those not following legislative development, proposed IRC 409B would put very punitive taxes on persons holding what is called “synthetic equity” in an S ESOP company. Go to www.esopassociation.org for explanations under Hot Topics, and Advocacy Kit.)

Here is what I am hearing.

One, I hear S Corp leaders say, “We do not have any synthetic equity in our S ESOP company, so why should we care?”

From my vantage point, having lobbied for good ESOP laws for over 25 years, there are both specific reasons for S ESOP companies to contact their Representatives, and general reasons for all ESOP Association members, not just our 900 S ESOP company members, to contact their Representatives to try to prevent proposed IRC§409B being endorsed by the House Ways and Means Committee.

Let me explain my view:

Even if an S ESOP company currently has no deferred compensation program tied to share value, or is “grandfathered” what if after proposed IRC §409B became law, the S ESOP company’s CEO dies, or the CFO quits, or the COO is terminated, and the S ESOP company leadership has to hire a replacement.

It is in the best interest of all the employee owners, by the way, to hire the best available person, paying what is expected to the person compared to what other employers pay for similar positions.

Let’s assume a promising young women CFO is a candidate. Let’s assume another corporation of similar size in the region also want to hire her.

The non S ESOP company can offer a good salary, an ERISA plan that defers the 415 amount of around $46,000, plus deferred compensation that might vest in five years that is tied to the company’s share value, such as a SAR, a stock option, a warrant, or bonus based on share value increases, etc.

If proposed §409B is law, the S ESOP cannot offer such a package. Oh yes, it could, if the economy co-operates and the S ESOP company has good cash flow, pay more in current compensation, or promise big annual bonuses; but, you know what, making big promises for big cash payments before someone takes the job is risky, because no matter how good a person looks on paper, until she is actually on the job, her suitability is not known, and predicting future cash flow is an art, not a science. Ask a home builder what s/he thought cash flow would be in 2008 in 2005, if you desire proof of my statement about cash flow projections not being certain.

In other words, under proposed §409B, the S ESOP is at a real disadvantage.

Do current S ESOP leaders want to tie their hands in hiring new executives compared to non S ESOP companies? I should think not.

But what is the big ESOP picture? What about those in the ESOP community that do believe in the Association’s Vision – that the number of employee owners through ESOPs grows and grows until a substantial majority of private sector employees are owners of the companies where they work?

One can surmise that enactment of proposed IRC §409B would be a bigger setback for the Association’s Vision than it is to individual S Corp ESOPs.

Why? Let me set forth reasons.

1. If the Ways and Means Committee approves proposed IRC §409B as introduced, it is an indication that the Democratic majority of the Ways and Means Committee view ESOP promotion laws suspiciously, and in need of “reform”.

2. If the Ways and Means Committee approves proposed IRC §409B as introduced, it is a clear indication that the Democratic majority of this most important Congressional Committee in Congress with regard to ESOPs is not interested at all in promoting, or expanding employee ownership through ESOPs.

3. If the Ways and Means Committee approves proposed IRC §409B as introduced, it is a clear indication that the Democratic majority of Ways and Means sees the ESOP community as weak, passive, and easy to attack in order to raise tax revenue to pay for tax beaks that the Democratic majority perceives as being for “good” guys in society, who have a more powerful voice in the nation.

4. Put 1, 2, and 3 together and the future for S ESOP law and C ESOP law is bleak as the Democratic majority of Ways and Means Committee would see no reason to favor ESOPs.

I hope the ESOP community does not sit on the sidelines while the Ways and Means Committee considers proposed IRC §409B.

My remarks are just my thoughts – they may be right; they may be wrong; they may be partially right; or they may be partially wrong.

Other thoughts are welcomed.

Friday, October 26, 2007

Legislative Language of ESOP Proposal Revealed

The following is a Legislative Alert that was sent to members of The ESOP Association today.

Section 3701 of HR 3970, by Congressman Charles Rangel, is the ESOP S Corp provision about which we wrote to you yesterday. You can read this provision and the entire bill by going on the Ways and Means website, and clicking on the left hand side, under Hot Topics, the live connection to the language of HR 3970, which is labeled as “HR 3970, The Tax Reduction and Reform Act of 2007.” The Ways and Means site can be accessed from the Association’s website under government affairs, menu item capital links, U.S. House of Representatives, or directly at http://waysandmeans.house.gov/MoreInfo.asp?section=34.

Please note, the provision defines as an option any interest that is the same as what is defined as synthetic equity in IRC 409(p)(6)(C). The new tax provision would apply to options granted after the date of enactment.

There is strong opposition to the entire bill, and enactment would be no earlier than some time in 2008, or perhaps even later, if ever.

Again, the leadership of the Association is reviewing the proposal in detail to determine the Association’s position on behalf of its members. The provisions definition of what is a stock option is broad.

Thursday, October 25, 2007

House Ways and Means Committee Proposes Cutback in Benefits of Stock Options in S ESOP Companies

The following is a Legislative Alert that was sent to members of The ESOP Association today.

While precise legislative language is not available at this time, a summary of legislation introduced today by Chair of the House Ways and Means Committee, Charles Rangel [D-NY], has as a so-called loophole closer, a provision that impacts an S ESOP corporation’s granting stock options to employees. Note, the proposal does not impact the underlying tax treatment of the S corporation’s taxable income pro rated to the ESOP’s ownership share.

This alert contains the best information on the proposal at this time below.

The Board of Directors of The ESOP Association, of which all corporate members are S ESOP companies, will immediately begin a review process of the proposal to fine tune the Association’s posture to the Congress about this proposal. It will supposedly raise $600 million over ten years, or a mere $60 million per year, in order to help pay for a near $400 billion reduction in corporate income taxes due to a proposed rate cut in the C corporation current rate of 35% to 30.5%, a proposal initiated by the Administration. Note the Treasury Department recommended a proposal in August that would have eliminated all ESOP tax benefits to raise $23 billion over 10 years.

“The ESOP Association’s historical posture is to be aggressive in protecting ESOP law and ESOP companies, as one set back often emboldens ESOP cynics to seek more ESOP cutbacks later,” said ESOP Association President and Chief Staff Officer Michael Keeling. “As noted when the Treasury Department recommended doing away with all ESOP tax benefits to pay for a corporate rate reduction in the name of making America more competitive, it is ludicrous to cut back on a program—employee ownership through ESOPs—that has proven to more often than not create a high performing, competitive company that is fair to employees. On the other hand, we are pleased that the Democratic leadership of Ways and Means did not endorse the more anti-ESOP proposal embedded in the Treasury Department recommendation in August.”

The ESOP Association will work with its ESOP friends on the Committee, both Democrat and Republican, to be sure misguided proposals that hurt ESOP companies are not part of some false concept that ESOPs do not help U.S. companies be more competitive.

The language from the proposal is below. When more information is available, it will be shared with Association members.

Recognition of ordinary income on exercise of stock options in S corporation with an ESOP. Under current law, an individual that holds an option in an S corporation is not subject to tax on the income of the S corporation until such individual exercise their option and becomes a shareholder in the S corporation. During the period of time in which an individual holds an option in an S corporation, taxes on the income earned by the S corporation are intended to be paid by the other shareholders in the S corporation. However, a portion of the S corporation’s earnings will never be subject to tax if one of the shareholders in the S corporation is a tax-exempt employee stock ownership plan (an “ESOP”). Certain taxpayers have taken advantage of these aspects of current law by having a tax-exempt ESOP hold a significant percentage of an S corporation’s stock while taxable individuals hold stock options. The combined effect of this structure is that taxable investors are able to benefit from appreciation in the value of the S corporation while a significant portion of the S corporation’s income completely avoids tax. The bill would require these option holders to recognize income when an option is recognized or sold in an amount equal to the amount of income that was shifted to the ESOP through this type of tax planning during the period of time that the option was held buy such taxpayer. Interest will be assessed at the underpayment rate on any amounts included under this provision. This proposal is estimated to raise $606 million over 10 years.